BOJ posts healthy reserves among trillion-dollar assets

The fortnightly report on the financial holdings of the Bank of Jamaica, BOJ, is showing healthy foreign reserves and local assets combined at $1.05 trillion, and reflects a $6-billion increase in cash in the economy, amid the high shopping season when currency is usually in high demand.

The December 8 report released last week reflected $743.4 billion in foreign reserves, $304 billion in local assets and demand liabilities of $666.6 billion, including $204.3 billion worth of notes and coins in circulation.

More recent data published by the BOJ, for the period December 1-17, puts currency in circulation at $215 billion.

The December 8 international reserves were down $10 billion relative to November 24 when its balance sheet showed $753 billion in foreign reserves.

The central bank typically sells foreign exchange into the financial system to meet foreign currency demand for overseas trade and to quell market volatility by evening out forex supply and demand imbalances, thus easing pressure on the value of the Jamaican dollar and reining in inflation. The reserves, comprising bonds and other long-term securities, timed deposits and International Monetary Fund’s special drawing rights allocations, continued to be significantly above the $575.7 billion the central bank held in foreign reserves for the country at the same time last year.

In the local currency market, holdings of Government of Jamaica, GOJ, securities remained unchanged over the two-week period at $274 billion, down $2 billion over the past year; while advances to financial institutions amounted to $4.5 billion, up from zero two weeks earlier, but significantly down from the $17.7 billion at December 9, 2020.

Last year the BOJ acquired close to $50 billion in GOJ securities from deposit-taking institutions and securities dealers as part of the central bank’s bid to maintain adequate levels of liquidity in the financial system and prop up the system to withstand the impact of the COVID-19 pandemic. The Government also provided $51 million in securities to cover past BOJ losses as required by law and to pump fresh capital into the bank ahead of its new independent status under the amended Bank of Jamaica Act 2020.

With $204.3 billion in notes and coins in circulation, about $6 billion more cash was been pumped into the system as at December 8, reflecting some $32 billion more liquidity in the system over the same time last year. This was in addition to $6 million in issued digital currency of the $230 million minted in August this year for the BOJ’s central bank digital currency pilot in which National Commercial Bank Jamaica’s Lynk payment platform is so far still the only confirmed approved participant, although other applicants are lined up.

Public sector deposits were $127 billion, up from $107 billion two weeks earlier and $84.3 billion around the same time last year. Commercial banks and other financial institutions had just over $191.7 billion parked at the BOJ, compared to $211.2 billion at November 24 and just about $182 billion at December 2, 2020.

At December 8, the BOJ had realised a profit of $20.17 billion so far on its operations this year, down $2 billion from two weeks prior. Profits due to the Government was $2.2 billion. In April this year the central bank paid over to the Government $32.6 billion in profits accumulated between 2018 and 2020.

The two-week financials were released two days after the central bank ramped up its policy rate to 2.50 per cent, the third straight indicative interest rate increase since it applied the brakes to its next to zero interest rate regime, lifting the rate paid on overnight deposits at the BOJ from 0.50 per cent to 1.5 per cent in September.

BOJ has signalled that more rate hikes are likely, given expectations that inflation will continue to breach the target range of 4-6 per cent for about another eight to 10 months. Its next rate decision is scheduled for February 18.

business@gleanerjm.com