Bank of Jamaica (BOJ) Governor, Richard Byles, says the Bank will be working closely with authorised dealers and cambios to ensure the smooth and orderly functioning of the foreign exchange market.
This, Mr. Byles said, against the background of public concern about the movement in the exchange rate, which, since August 12, “crossed the psychological threshold of $150 to US$1,” adding that the resonating anxiety is “understandable”.
Speaking at the Central Bank’s digital quarterly press briefing on Wednesday (August 26), he said the recent significant depreciation of the Jamaican dollar has resulted from a reduction in US dollar inflows.
This, he noted, is due primarily to the “sudden stop” in tourist arrivals since the onset of the coronavirus (COVID-19) in Jamaica in March, as well as the sector’s slow recovery since the reopening of the country’s borders in mid-June.
The Governor noted that remittance inflows have been “particularly strong”, growing by approximately 42 per cent, while pointing out that “this has certainly helped liquidity in the market”.
Mr. Byles highlighted a “pickup” in foreign exchange demand in August, relative to the previous month, adding that “this has led to an adjustment in the exchange rate”.
In light of this, he said the BOJ sold US$30 million to the market on August 18, “so as to ensure continued orderly adjustments in the exchange rate”.
“We also offered a US-dollar index bond to investors seeking a hedge against future exchange rate movements,” he added.
Mr. Byles said these interventions came on the heels of several previous initiatives to provide extra liquidity to the foreign exchange market since March.
These include BOJ Foreign Exchange Intervention Trading Tool (B-FXITT) flash sales, direct sales to energy-sector stakeholders, extending a foreign exchange swap arrangement, providing a US-dollar repurchase facility, and reducing foreign currency cash reserves held by deposit-taking institutions (DTIs).
“These measures have already provided in excess of US$700 million in foreign currency liquidity support to the market,” Mr. Byles indicated.
He advised that apart from supplying extra liquidity in times of crisis, the BOJ intervenes “only if we see or expect disorderly movements in the exchange rate that could threaten the inflation target”.
The Governor said the BOJ will, if necessary, act using both monetary policy and foreign exchange operations “to ensure that movements in the exchange rate do not affect our [four to six per cent] inflation rate target”.
“Let me emphasise that with gross reserves of US$3.7 billion, Jamaica is in a stronger position than in previous crises. These reserves, if judiciously managed, will be adequate to see us through this temporary crisis,” Mr. Byles added.