NDX bond payout won’t derail JMD, inflation — BOJ
The Governor of the Bank of Jamaica (BOJ) expects minimal impact on the dollar and inflation with the maturation of $62 billion in bonds next week.
Essentially, the central bank government holds enough reserves to defend the dollar, said Governor Brian Wynter.
"The BOJ is therefore well equipped to maintain orderly conditions in the foreign exchange market, including any unusual swings in demand and supply occasioned by these events. And in any event, as we have said before, the Jamaican dollar is no longer overvalued and is therefore less susceptible to unpredictable slippage," said Wynter, BOJ governor, at a briefing at the central bank on Friday. The JMD is now trading at around $121.50 to the USD.
The context of the briefing was to supply context to the media ahead of the payout set for Thursday, February 11.
"On the issue of the impact of the FX market, some of the liquidity may lead to increased consumption of imported items and some may go into foreign exchange accounts. BOJ has for some time been carefully preparing for this event. We have maintained a strong net international reserve (NIR), well in excess of the target for March 2016 in the Extended Fund Facility agreement with the International Monetary Fund (IMF)," said Wynter.
The NIR now stands at US$2.3 billion, well ahead of the US$1.6 billion target.
Of the $62 billion in NDX bonds maturing, the BOJ expects a net injection of $48 billion into the system. The BOJ and Ministry of Finance will mop up about half of that amount, the central banker said. Of the $48 billion, the Finance Ministry is expected to float instruments targeted to raise $15 billion, while BOJ says $8 billion is due to flow directly to its coffers.
That leaves around $25 billion, Wynter said.
"We anticipate the remaining liquidity will flow into overnight and 30-day placements at BOJ. Some of these funds will be permanently sterilised towards the end of March by the cash inflows from the fiscal surplus the Government is expected to generate for that month. Recall that heavy tax inflows usually occur in March particularly at the end of the month," he told the briefing attended by three media representatives and five technocrats at the BOJ on Friday.
The Government wants to mop up just enough to allow funds to spur lending institutions to offer more attractive loans to the productive sector.
"We expect that over the longer term the surge in liquidity will prompt further expansion in loans to producers and consumers at affordable interest rates. Lending rates, in particular mortgage rates and rates on instalment credit, have already declined but too slowly," he reasoned.
"We do not expect it to have an impact on inflation," he added in response to a Sunday Business query.
Annual inflation has been running below four per cent, which remains one of the lowest levels in five decades.