The Bank of Jamaica (BOJ) is reporting that there is sufficient American dollars in the foreign exchange (FX) market given the fact that there were no confirmed swap transactions last week.

The BOJ is also reporting that no swaps will mature via this arrangement this week. The total outstanding under the BOJ FX Swap Arrangement is US$7 million.

The fact that there has been no FX swap confirmed is an indication of sufficient hard currency in the market to satisfy local demand, which has been a point repeatedly stated by the BOJ.

Under the FX Swap Arrangement, the BOJ agrees to sell US dollars to authorised dealers within a pre-determined limit, at the prevailing market rate with an agreement to buy back the same amount of US dollars at a time in the future at an agreed forward rate.

In addition to its usual B-FXITT operations, the BOJ utilises the FX swap arrangement to smooth out excess volatility and restore orderly conditions in the market. According to the BOJ, the current FX market volumes are very healthy and there is no shortage of FX in the system.

BOJ encouraging cautious, responsible behaviour in FX market

The BOJ is encouraging the FX market to demonstrate caution and responsible behaviour, pointing to the fact that the robust level of remittance inflows added to the vigorous volumes present in the market is sufficient to meet the needs of end users. Also the strength of the BOJ’s foreign reserves have all combined to indicate clearly that the economy at this time has more than enough FX at its disposal.

The BOJ contends that there is sufficient FX in the market to safely navigate the rough waters of the current COVID-19 crisis. The BOJ introduced the new swop arrangement in January last year, as an instrument available to foreign exchange authorised dealers.

This instrument is intended to enhance the BOJ’s management of the foreign exchange market and provides US dollar liquidity to the market through authorised dealers via a swap arrangement.

Liquidity in for US$ remained generally moderate

In the meantime, liquidity for the US$ remained generally moderate. Broker market demand is at 60 day and longer tenured funds.

At the same time J$ liquidity was adequate week over week. Brokers opted to place for tenures 30 days and longer.

The average yield of the BOJ’s competitive auction on its 30 days Certificate of Deposit declined to 0.50 per cent relative to 0.60 per cent in the prior two weeks. The highest bid for full allocation was 0.529 per cent.

A total of J$2.40 billion was offered in the auction while the total bids received was J$12.69 billion.