Independent BOJ expected to modernise bank oversight
The modernisation of Jamaica’s central bank will see the Government pumping around $26 billion of fresh capital into the Bank of Jamaica, BOJ, as it transitions to independence.
Side by side with its recapitalisation, says Finance Minister Nigel Clarke, the BOJ will be moving to incentivise interbank activity and trading, so that demand for foreign exchange can be satisfied between financial institutions, instead of them all looking to the BOJ as their source of cash.
“Modernising the bank also means we are capitalising the central bank, that is, strengthening its capital base and its financial ability,” said Clarke, while addressing the annual breakfast meeting of the Jamaica Securities Dealers Association, JSDA, in New Kingston on Wednesday.
“Why is that important? That’s important because the stronger the capital base, the more it will be able to use market operations to conduct monetary policy and to conduct liquidity management,” he said.
In January, the BOJ confirmed that under proposed legislation tabled in Parliament, its capital would be boosted to $28 billion through the payment of $26.2 billion in marketable securities by the Jamaican Government.
Up to December of last year, the finance ministry reported outflows of $22.49 billion as capitalisation for the central bank and other purposes, but not the precise amount paid over to the BOJ.
Clarke indicated on Wednesday that BOJ reform is expected to lead to a revised approach to the management of liquidity, one that results in more tangible outcomes from monetary policy.
Traditionally, the focus has been on prudential variables, he said. But “for today’s Jamaica where we expect there to be efficient monetary transition, where we expect for the lowering of the interest rates to spread to the economy, and more businesses to benefit from those rates – using prudential variables for liquidity management is counterproductive,” the finance minister said.
As the central bank is strengthened, “you can expect that the push for financial and market deepening will see a reduction of those prudential numbers,” Clarke added.
Asked about the adjustments referenced by the finance minister, Senior Deputy Governor for the BOJ, John Robinson, said only that “any changes in monetary policy will be announced on a published schedule of decision dates”.
The next decision date is February 20.
The BOJ last adjusted liquidity ratios in April 2017.
The liquid assets ratio for the foreign currency liabilities of commercial banks, merchant banks and building societies increased by one point to 29 per cent, but stayed at 26 per cent for local currency liabilities.
The cash reserve requirement for foreign currency, prescribed liabilities was also increased to 15 per cent, and to 29 per cent for liquid assets for the three categories of deposit-taking institutions, but were also unchanged for local currency liabilities.