BOJ intervenes in forex market again
With the Jamaican dollar depreciating to more than $127 to the United States currency last week, the Bank of Jamaica (BOJ) began intervening by selling US$55 million to prevent instability in the foreign exchange market.
It was the first since the April and May interventions when the local currency passed the $125 mark relative to the US dollar.
On July 25, the average selling rate of the United States dollar was $126.38, but it slid to $127.03 by August 16, giving rise to speculations that the currency "is just flying".
However, central bank Governor Brian Wynter says: "No, it's not flying. The exchange rate has had some movement during this fiscal year. The period that people are probably thinking about would be April and May when there were some sharp movements in the exchange rate, which we have addressed and the exchange rate settled down."
At the time, he said, "We indicated that the driver of those movements were not current transactions for the current account in ordinary buying and selling or for businesses, but were related to some extremely large capital transactions."
Wynter said that episode has passed and the exchange rate has been fairly stable since then.
"I believe people are referring to the past week or so, where you see the rate pick up a little bit more speed from where it was just before," the BOJ Governor said in response to questions posed at the 13th International Monetary Fund Extended Fund Facility press conference at Jamaica House on Friday.
Wynter said the movements brought the exchange rate last Thursday to $127.15 to the United States dollar, coming from around $125.50 or so about a week or two before.
"The bank has always monitored the exchange rate very carefully," the governor said. "When we see movements that we believe could lead to an unstable market, we then decide to intervene by selling."
As a result, the BOJ has been selling foreign exchange in the market since last Tuesday "and we continue to intervene in support of ensuring that the flow of funds to end users is assured, and the bank will continue to do so," he said.
"Therefore, we expect the exchange rate to continue to settle down in due course and we will continue to observe in the future if the rate picks up too much speed or not, looking at the reasons for it, and then we will react," Wynter added.
The governor said beyond that, it is important to state that the drivers of foreign-exchange demand and supply in Jamaica has traditionally been dominated by the current account of the balance of payments.
"This is the need for those who are buying things to deliver to Jamaicans - direct goods, indirect goods - to have foreign exchange to be able to afford it," he said.
Intervention started last Tuesday
According to Wynter, the current account of the balance of payments has reached a point now where, at less than three per cent of GDP, it is more than covered by inflows from foreign direct investment.
"So that source of instability has been completely removed and we expect that to continue as well," he said, noting that the intervention this month has only been since Tuesday last week "and the total intervention so far, as we speak now, is US$55 million".
The BOJ's forecast is for the current account deficit to remain within the range of two to three per cent of GDP in fiscal year 2016-17.
With the instability in the foreign-exchange market earlier this year, the BOJ sold US$95 million into the market on April 28, representing the single largest intervention volume sales to the market on any given occasion.
The BOJ re-entered the market on May 20 and maintained a presence with sales of more than US$60 million.
Wynter proclaimed then that a 0.9 per cent depreciation in the rate of exchange between the Jamaican and United States dollar in April and at least a 1.8 per cent decline in May were excessive and not supported by prevailing economic conditions.