Jamaican currency adds muscle, USD savings fall
As the Jamaican dollar appreciates, the pressure on the Bank of Jamaica, BOJ, to defend the local currency by selling the greenback to the market has eased.
The stock of US dollar savings has also been declining, according to data from both the central bank and the Jamaican office of the International Monetary Fund, IMF.
Senior deputy governor of the BOJ, John Robinson, told the Financial Gleaner that a total of US$27 million was sold via B-FXITT auctions last November.
B-FXITT is an auction system under which the BOJ supplies foreign exchange to banking institutions and dealers. The auctions are held weekly on Wednesdays.
"To this point, all B-FXITT operations have involved the sale of foreign exchange by the bank with the amount determined by market intelligence," said Robinson. "Based on the feedback from market participants, no sales have been made since November," he said.
The last auction was held on November 29.
The JMD peaked at $131.22 against the US dollar last September, but was trading at $124.87 at the top of this week.
"The volume of purchases and sales in the foreign exchange market has remained buoyant over the last few months. There has also been a net reduction in the foreign exchange positions of dealers as a group," Robinson noted.
The appreciation of the currency has seen investors converting their holdings from hard currency, according to data supplied by the IMF Resident Representative for Jamaica, Dr Constant Lonkeng Ngouana.
Up to October 2017, the most recent data available, Lonkeng said the ratio of US dollar savings to total savings was 49 per cent, compared to 55.6 per cent at that same point in 2016. The ratio of US dollar deposits to total deposits fell to 43.3 per cent from 48.1 per cent for the same period.
Efforts to get comments from pension funds and banks on how their portfolios have been affected by the currency appreciation were unsuccessful.
But the central bank itself is pleased with the direction of the market - a trend it previously predicted would evolve under B-FXITT, which was introduced in July 2017.
"The foreign exchange market has generally moved away from being a market where the exchange rate constantly drifts in one direction. The domestic exchange rate in calendar year 2017 reflected more normal two-way movement, where the rate is just as likely to move up as it is to move down," said Robinson.
"Over 2017, the Jamaican dollar experienced at least three cycles of upswings, followed by downswings, including the ongoing episode. The current appreciating trend, which has been observed since October, was largely prompted by the response of market participants to increased US dollar supply associated with the early redemption of the GOJ US dollar bond at end-September," he said.