The Bank of Jamaica (BOJ) has extended its foreign exchange (FX) moratorium until the end of 2022 following dialogue with the Financial Services Commission (FSC) and the Jamaica Securities Dealers Association (JSDA).

“[The]Bank of Jamaica has conducted a review of the directives in consultation with the securities dealers industry and the Financial Services Commission. The securities dealers have been cooperating with the BOJ and the FX market has been stable. However, the economic challenges which motivated the directives persist. Against this background the arrangement, whereby the issue of FX instruments would be allowed once there is prior demonstrable evidence that it would not affect the FX market, was extended to end December 2022,” said BOJ Senior Deputy Governor Dr Wayne Robinson in an e-mail with the Jamaica Observer on Monday.

The FSC itself noted to licensees/registrants on September 30 that the directives from its May 27 letter would remain unchanged and continue until the end of December 2022. It referenced that all applicants must continue to provide the requisite supporting documents including the attestation letter and intended categories of subscription with each exempt distribution application to the FSC, post-distribution notification to the FSC and that issuers are not allowed to upsize the registered amounts of the securities for both USD (United States dollars) and USD-indexed instruments.

The letter also noted that the administrative threshold has been increased to US$20 million with all other requirements in relation to the treatment of FX denominated instruments remaining the same. It was signed by FSC senior director for the securities division Karene Blair.

The administrative threshold used to be US$15 million which was a point whereby a FX instrument to be issued above that amount required approval by the BOJ and formal approval by the finance minister (Dr Nigel Clarke). This threshold acted as a way to not have material disruption to FX availability in the market.

A recent example of this limit was with Barbadian-based Productive Business Solutions Limited which recently issued perpetual cumulative redeemable preference shares. The company received US$18.7 million from 597 applications for its 9.25 per cent USD preference shares and $582.3 million from 531 applications for its JMD preference shares. The company had originally sought to raise US$10 million and $150 million with an option to upsize by US$5 million and $150 million. However, an addendum was posted that said the company intended to change the upsize amount for the JMD shares from 150,000 to 350,000 shares. Thus, the company ended up raising 500 million JMD, but the USD upsize amount was unchanged since it was at the administrative limit which would require ministerial approval if it went above that limit.

When asked by the Business Observer about the extension of the FX moratorium and increase in the administrative threshold, JSDA President Steven Gooden said, “We had anticipated greater relaxation. Nevertheless, we are cognisant of the environment that we are in and the fact that we are not yet out of woods. The JSDA was able to negotiate a 33 1/3 per cent lift in the administrative threshold to US$20m. This reflects continued and improved collaboration with the BOJ on this issue.”

The BOJ, through the FSC, had originally put a six-month moratorium on the issuance of FX instruments on February 22. The only levy given was to firms refinancing debt with those seeking above the US$15-million limit needing approval by the BOJ. The action meant securities dealers and other entities regulated by the FSC would be unable to issue instruments such as bonds, loans, notes and other financial securities in foreign currencies, primarily the USD.

This move came after the BOJ had hiked its policy rate by 150 basis points on February 18 and sold US$100 million between February 14 to 17 through B-FXITT (BOJ Foreign Exchange Intervention Tool).

However, the BOJ amended the moratorium nearly two weeks later based on input received from securities dealers and other stakeholders. The securities dealer had to include in the application how the distribution strategy would not create FX demand from the FX market, list all the intended sources of capital across the various client buckets and verification of the sources for the subscription once the offer was closed.

The moratorium was expected to end in August, but the BOJ’s FX interventions spiked in July where it sold US$126.10 million via B-FXITT over five days. There was nearly twice the value of bids relative to the amount on offer at each intervention. Point-to-point inflation also stood at 10.2 per cent which was well outside the bounds of their four to six per cent inflation target.

Since then, the BOJ has only intervened five times between September and October with US$150 million sold over that period. The FX rate between the JMD and USD which started the year at $155.08 ended March at $153.78, June at $151.56 and September at $152.82. The weighted average rate was $154.09 as of October 28.

In his presentation to Parliament on October 26, BOJ Governor Richard Byles noted that the bank’s actions since October 2021 have assisted in maintaining a stable exchange rate which has cushioned Jamaicans from the elevated commodity prices. Point-to-point inflation was down to 9.3 per cent for September. The BOJ’s policy rate has increased from 0.50 per cent in September 2021 to 6.50 per cent as of September 2022. The next policy rate decision is set for November 18.

“The interest rate adjustments, in conjunction with the bank’s decisive actions in the foreign exchange market over the period to date, have contributed to the maintenance of stability in the foreign exchange market. Without these actions, imported inflation — and hence the final prices faced by Jamaican consumers — would have been higher,” said Byles.

“Earlier this year when a moratorium was placed on the table, we were able to negotiate a middle ground. We look forward to discussions in December at the expiration of the current arrangement,” Gooden closed.