By McPherse Thompson, Staff Reporter
Bank of Jamaica
THE Bank of Jamaica (BoJ) has moved to stem the devaluation of the Jamaican dollar, requiring commercial banks and other institutions licensed under the Financial Institutions Act to lodge five per cent of their Jamaican dollar deposits with the central bank as of today.
Market players said yesterday that the move was already having a positive impact on the local currency, and was a welcome response to the past few weeks' instability in the foreign exchange market.
In the past few months, and particularly since December last, the Jamaican dollar has come under increasing pressure from a combination of factors, resulting in a steady decline in the value of the local currency against its United States counterpart, despite the BoJ's interventions.
At the end of trading yesterday, the BoJ's weighted average rate reached an all time high of $51.94 to US$1. Yesterday morning, foreign exchange traders sold the US dollar for as much as $52.10 before reducing the asking price later in the afternoon to around $51.70 after news of the BoJ's new measures hit the market.
The central bank said the measure was being instituted in a context of increased speculation and heightened instability in the foreign exchange market, which has been facilitated by the high levels of Jamaica dollar liquidity in the system. It said it intended to retain the measure until normality was restored in the foreign exchange system.
Spokespersons at both the Bank of Nova Scotia (BNS) Jamaica and the National Commercial Bank (NCB), the island's two largest commercial banks, said they were awaiting details of the new arrangements and were therefore not able to comment when the Financial Gleaner contacted them yesterday afternoon.
Doug Peebles, general manager for treasury and correspondent banking at NCB, said to the extent that "we will be required to deposit five per cent over and above the nine per cent we already deposit there will be a cost to us." However, he added that they would need to know what interest rates would apply to those deposits before they could cost it. He declined to comment on the aptness or otherwise of the central bank's latest move, suggesting that was a question for the BoJ.
A banking source told the Financial Gleaner that the five per cent deposit should not be considered an increase in commercial banks' cash reserve ratio, which was gradually reduced to nine per cent last year. Rather, it was a special deposit that would be lodged in a special interest-bearing account.
And Mark Walters, vice-president of treasury at Dehring, Bunting & Golding (DB&G), said the BoJ's move was an attempt to bring back stability in the foreign exchange market and was a welcomed decision.
He said there has been a "fair bit of speculation in the foreign exchange market" in recent weeks and implementation of the new measure should have the desired effect.
But he also said the measure could force up Jamaican dollar interest rates as those institutions registered under the Financial Institutions Act would be expected to be aggressive in the market, seeking to find the funds to meet the BoJ's requirement. Lending rates could also be increased and there could be some impact on the equities market, he said.
