BOJ chief tries to calm forex fears
Central bank chief Brian Wynter says the Jamaican currency is fairly valued at its current rate even as the pace of depreciation accelerates.
For the fiscal year to date, April 1 to November 11, the Jamaican dollar lost 5.9 per cent of its value relative to the US dollar, faster than the 4.2 per cent recorded during the same period last year.
The Jamaican dollar traded at 129.09 on Friday, but on Monday, the day of the Bank of Jamaica governor's quarterly press briefing, it appreciated to $128.99.
Corporate leaders have been vocal with their concerns regarding the performance of the dollar and what it means for the cost of doing business. Today, Wednesday, the members of the Jamaica Manufacturers' Association will get to pitch questions to BOJ representatives at a special forum.
At Monday's press briefing, Wynter, who acknowledged concerns regarding the fall in the value of the JMD, said most of the movement in the exchange rate happened in April and May, but since then, the market has returned to more orderly trading patterns with the last three weeks reflecting a small appreciation.
READY TO MEET SHORTFALLS
The BOJ governor said the central bank sold US$475 million into the market during the first six months of the fiscal year, April to September.
"We stand ready to sell foreign exchange to meet any shortfall that threatens stability," he added.
Wynter said the central bank is temporarily tightening Jamaica dollar liquidity in the short end of the market - that is, its weekly 14-day repo auctions - to influence at the margin the choices that portfolio managers make.
The BOJ is exercising its option to repay early US$255 million worth of US dollar certificates of deposit, giving the contractually required three months' notice.
"We are taking steps to persuade holders of these US-dollar CDs to take back their money from us even earlier," Wynter said.
Wynter explained that with a level of about US$3 billion in gross reserves representing ammunition, the BOJ has to be used in an emergency or to deal with the foreign exchange market, plus the availability of US$1.64 billion under Jamaica's new standby arrangement with the International Monetary Fund (IMF), the bank had more than adequate reserves.
He affirmed that there was no shortage of foreign currency, in a pushback on public utterances to the contrary.
Wynter also said the BOJ began raising foreign currency reserve requirements in order to reduce the incentive for holding foreign currency deposits, saying it should rise by three percentage points in phases, to reach 12 per cent by December. That ratio would put it on par with cash reserve requirements for Jamaican dollars.
The cash-reserve ratio for foreign currency was last adjusted in 2010 when it was cut from 11 per cent to 9 per cent.
A working group has been formed at the request of Finance Minister Audley Shaw to address the depreciation of the Jamaican dollar. It's chaired by Governor Wynter and includes participants in the foreign exchange market and public officials.
Wynter said that in the interest of market transparency, if non-public information is provided to members of the working group, it will also be made available to all market participants.
At the press briefing, the central bank chief otherwise reported that the current account of the balance of payments for the June quarter is estimated to have been a very small deficit of US$13 million, compared to a deficit of US$118 million for the June 2015 quarter.
For fiscal year 2016-17, the central bank is projecting that the current account deficit will be equivalent to about three per cent of GDP.
Although higher than the 1.8 per cent out-turn during the last fiscal year, it is much lower than the 10 per cent to 14 per cent experienced in the years before the IMF's Extended Fund Facility, Wynter said.
BOJ is also projecting gross foreign direct investment inflows at close to the US$950 million or 6.6 per cent of GDP experienced in fiscal year
2015-16, reflective of continued investment in tourism and infrastructure.
It is also forecasting that headline inflation will end this calendar year below two per cent before tracking back up to the lower end of the target range of 4.5 per cent to 6.5 per cent by March 2017.
"This rise in the March 2017 quarter is simply the statistical consequence of dropping from the 12-month series the deflation that occurred in the months of January, February and March of 2016," said Wynter. He said actual prices increases between now and March are projected to average around 0.4 per cent per month.
In the inflation expectations survey conducted in August, expected inflation 12 months ahead declined to 3.3 per cent from 3.8 per cent in the May survey, the BOJ governor said.