JIS News

In order to remove liquidity overhang and to preserve order in the financial market, the Bank of Jamaica (BOJ) has announced the implementation of two new measures.
On Tuesday, November 18, 2008, the Bank offered a Special Certificate of Deposit to Primary Dealers and Commercial Banks, to mature on Wednesday, December 3, 2008. Interest payable on this instrument will be 20.50 per cent per annum. This instrument will be on offer from Tuesday, November 18 to Wednesday, November 19, 2008. BOJ’s regular menu of Certificates of Deposits (CDs) ranging from 30 days to 365 days will remain on offer.
Effective December 3, 2008, on the expiration of a 15-day notice period, the cash reserve requirement of commercial banks, merchant banks and building societies will be increased to 11 per cent of Jamaica Dollar liabilities from the current requirement of 9 per cent. The liquid asset requirement would therefore rise to 25 per cent from the current 23 per cent. The Central Bank intends to increase these requirements by a further 3 percentage points.
Since the start of October, the Bank of Jamaica has used several modes of intervention to support the extraordinary foreign exchange needs of financial institutions and commercial operators that have arisen from the adverse developments in external markets. In addition to sales to authorized dealers, measures have included the direct sale of foreign currency to entities, the extension of collaterized credit to securities dealers to replace volatile margin arrangements and the intermediation of funds among domestic institutions.
These measures have contributed to a marked slowing in the depreciation of the exchange rate.
More recently, with the maturity of both BOJ and GOJ securities, there has been a build-up of Jamaica Dollar liquidity in the banking system that could threaten stability. In order to remove this excess liquidity and to ensure stability in the financial market, the Bank of Jamaica has therefore implemented the new measures.
The Central Bank has emphasized that these monetary policy actions are temporary measures to support the achievement of the inflation objective and the maintenance of macroeconomic stability.