$13.95b in circulation for Xmas
Neville Graham, Business Reporter
The Bank of Jamaica (BOJ) is moving to mop up liquidity in the face of an expected uptick in money supply. The latest word out of Bank of Jamaica is that it is offering three foreign currency instruments with no cap on the amount. The offer opens on Wednesday, December 17, and closes on Christmas Eve.
The offer comes as the central bank announced early Tuesday that it expects an uptick in currency in circulation as Christmas spending ramps up and Government shells out money it owes.
"It is anticipated that there will be an uptick in demand for currency during the period 17 to 24 December, given public-sector salary payments during this period, as well as an expected escalation of spending related to the holiday season," said a BOJ release.
The central bank is projecting that $13.95 billion will be in circulation over the Christmas period, 20.2 per cent more than the available currency for the same period of December 2013.
According to BOJ data, average inflation was at 8.3 per cent for 2013. If that is factored in, then the expected real increase in money supply should be nearly 12 per cent above last year. So the move to offer the instruments at this time is no doubt sending a signal to the market.
"Yes, to the extent that they are putting out US dollar-denominated instruments it shows that they are trying to attract any US dollar liquidity out there by offering a competitive rate of return," Dr Adrian Stokes, Scotiabank's vice-president of strategic planning risk and market intelligence, told the Financial Gleaner.
"What you'll see is that persons who have US dollar instruments out there they will take advantage of the rates by swapping out one instrument for another (higher-yielding instrument). You'll also find that they will use their Jamaican dollars in going after these instruments," Dr Stokes said.
However, he does not expect the move to negatively impact inflation, which has been trending down, the BOJ having projected it to fall within the range of seven to nine per cent at the end of fiscal year 2014-15.
Dr Stokes opines that the authorities are not concerned about exchange rate movement or inflation at this time since "a more generalised Jamaican dollar-denominated instrument would have been offered" if that were the case. He feels that the authorities are trying to do an orderly process of going after foreign exchange liquidity while building up the net international reserves (NIR). The NIR peaked at over US$2.3 billion in July, holding that position until September and then dipping to just over US$2 billion during the October to November period.