The Bank of Jamaica (BOJ) has increased its interventions in the market through its BOJ Foreign Exchange Intervention Trading Tool (B-FXITT) as the foreign exchange (FX) rate between the Jamaican dollar (JMD) and United States dollar (USD) moves up in the last month.

The BOJ intervened in the foreign exchange market on September 15 and 16 with US$30 million on each day as the weighted average sell rate trended up from $151.60 at the start of the month to $153.50 on September 14. The total value of eligible bids received on September 15 was US$52.1 million with the settlement price for bids coming in at $152.05. Another US$42.5 million in bids were received on September 16 with the settlement price coming in at $152.25. JMMB Bank (Jamaica) Limited and GraceKennedy Currency Trading Services Limited, trading as FX Trader, received US$6 million each day while National Commercial Bank Jamaica Limited (NCBJ) and JMMB Securities Limited were allocated between US$3.40 million up to US$6 million over the two days. The FX rate went to $152.69 on September 19 and ended September at $152.82.

However, the BOJ intervened once again on October 7, 10 and 11 with US$30 million as the weighted average sell rate hit $154.36 on October 6. Unlike the prior FX interventions in September, the value of eligible bids received on October 7 was US$58.75 million with a settlement price of $153.37. The FX intervention on October 10 saw US$56 million in eligible bids received with a settlement price of $153.42. The Bank of Nova Scotia Jamaica Limited and NCBJ received US$6 million each while cambio Barita Investments Limited received US$4.15 million on October 7. NCBJ and JMMB Securities were allocated US$6 million each on October 10. US$49.60 million in eligible bids were received on October 11 with a settlement price of $152.98. JMMB Bank Jamaica and JMMB Securities were allocated US$5.65 million and US$5.30 million respectively.

The last time the BOJ intervened in the FX market was in July where they deployed US$126.10 million over five days in the month. This was the second largest monthly intervention after the BOJ sold US$140 million between February 14 to 17.

“Additionally, the MPC [Monetary Policy Committee] noted that the bank’s continued strong international reserves reinforce its ability to support the foreign exchange market as needed. The MPC highlighted the key role that the use of the reserves have played in managing the exchange rate and, by extension, the fight against inflation. The committee noted that it would continue closely monitoring the reserves to ensure they remain at adequate levels,” the BOJ’s MPC minutes for August 16 and 17 said.

The minutes noted that the pace of depreciation in July was tempered by the US dollar liquidity support through the BOJ’s sales via B-FXITT and the public sector entity (PSE) facility. Jamaica’s net international reserves (NIR) strengthened by US$56.9 million to US$3.81 billion which represents 36.32 weeks of goods imports and 24.19 weeks of goods and services imports. The strengthening of the NIR was driven by an increase in currency and deposits relative to the decline in other foreign assets and foreign liabilities. The NIR is relatively down from the US$4 billion when the year started.

The BOJ’s MPC was presented with four different macroeconomic scenarios at the August meeting which explored a higher depreciation rate for the FX rate, holding the policy rate unchanged over four additional quarters, a shock in oil prices and a stronger than anticipated impact from the US Federal Reserve’s rate hikes. It was on this basis that the MPC increased the policy rate by 50 basis points at that meeting and maintain tight Jamaican dollar liquidity conditions and exchange rate stability.

The BOJ has increased its policy rate six times this year to 6.50 per cent as of September 30 after starting the year at 2.50 per cent. However, the Fed has increased its fed rate five times this year from 0 – 0.25 per cent to 3.00 – 3.25 per cent as of September 22. The US Federal Open Market Committee will meet on November 1-2 while the BOJ’s MPC will meet on November 18 to determine the next set of interest rate decisions.

“The MPC also discussed the outlook for interest rate differentials between US and Jamaica. Committee members reiterated that the interest rate differential would have to fall within a particular range to maintain the attractiveness of domestic financial instruments, relative to foreign assets, thus mitigating any incentive for private capital outflows and, by extension, foreign exchange market instability. The monetary policy recommendation to be tabled by the staff to the MPC was designed to ensure that this differential remains above expected changes in the domestic exchange rate,” the BOJ’s minutes added on the interest rate differential and its impact on the FX rate.

Point-to-point inflation in Jamaica is currently at 10.2 per cent up to August which was well above the BOJ’s target range of four to six per cent. Inflation in the United States of America is at 8.3 per cent up to August which is above the Fed’s target of two per cent. The next set of USA inflation data comes out tomorrow while Jamaica’s inflation data will be released next Tuesday. The Jamaican dollar has appreciated against the United States dollar year to date from the starting rate of $155.08 relative to other global currencies such as the Euro and Great British pound which have depreciated by double digits this year.

“A separate survey on consumer inflation expectations showed that close to 90 per cent of the respondents reported that prices increased significantly over the past year. Similarly, many respondents felt that prices would continue to rise over the next year at a faster pace. The majority of the respondents reported that past changes in prices and in the exchange rate were the major factors driving their views about future price increases,” the minutes closed.