BOJ demands investment projections for lifting US$ cap
Correction & Clarification
The article titled ‘BOJ demands investment projections for lifting US$ cap’ published in the Financial Gleaner, January 3, 2014, misstated the caps on holdings of foreign currency assets. The correct information is as follows: the current 5.0 per cent cap will remain in effect until June 30. It will be lifted to 7.5 per cent on July 1, 2014, and to 10 per cent on January 1, 2015. We regret the error.
In order to qualify for the proposed increase in United States dollar investment holdings, pension funds and security dealers will have to provide the central bank with investment projections and their audited financial reports.
The Bank of Jamaica (BOJ) states on its website that the relaxation of the cap will only apply to eligible securities dealers and collective investment schemes. Each entity will be required to provide the BOJ with a foreign-currency investment projection by the end of February 2014.
On Tuesday, the bank announced that it will be lifting the cap, currently at five per cent among most dealers and pension funds.
In addition, in order to maintain eligibility, dealers and pension funds must provide an updated foreign currency investment projection quarterly.
The cap will be lifted in stages and will only apply to those which have delivered quarterly projections within 60 days after the end of each quarter.
On June 30, 2014, the cap will be lifted by five per cent; on July 1, it will be further lifted by 7.5 per cent; and on January 1, 2015 by another 10 per cent, the BOJ said.
The bank said it will also be entering into consultation with the affected entities, including representatives of regulated entities in the insurance and pensions sectors, as well as their regulatory body, the Financial Services Commission during the first half of 2014. The aim, the BOJ said, is to establish "the scope and extent to which current limits on permissible investments in foreign-currency assets can be lifted over time".
It said the existing exemption of foreign-currency instruments issued by the Jamaican Government, and foreign instruments issued or guaranteed by the United States, United Kingdom and Canadian sovereigns applicable to securities dealers will remain in force.
A special limited exemption will be created so that securities dealers will be able to move into collective investment schemes (CIS).
"The effect of the exemption is to allow CIS to hold exempt foreign- currency instruments in any amounts up to a global limit calculated as the aggregate holdings by securities dealers of exempt foreign-currency instruments sold under repurchase agreements as at 31 December 2013," the central bank said.
The BOJ noted that in addition to foreign-currency instruments issued by the Government of Jamaica and foreign instruments issued by or guaranteed by the United States, United Kingdom and Canadian sovereigns which have already been exempted, securities dealers and collective investment schemes will be permitted to acquire, in all currencies, investment-grade sovereign obligations, investment-grade corporate obligations of entities incorporated outside of Jamaica and shares of such corporations.
These limited categories may later be expanded as the regime for collective investment schemes expands, the bank said.
In a release on Tuesday, the BOJ said "financial entities will continue to be subject to the prudential standards applicable to each sector of the industry in order to preserve financial stability".