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BOJ spends big on high-maintenance forex market

Published:Friday | September 7, 2012 | 12:00 AM

The Bank of Jamaica (BOJ) sold US$134 million net in the June quarter in a bid to plug the largest fall in net foreign exchange private inflows since the IMF bailout agreement two years ago.

Foreign exchange private inflows which includes private-sector trade credit, investment income and tourism earnings - but not IMF or multilateral funds - dipped 45 per cent year on year to US$419 million from US$768.4 million.

BOJ said the fall in private inflows caused its intervention in the market.

Comparatively, the largest previous dip in private inflows occurred in the December 2011 quarter by 29 per cent to US$465 million. Other quarters remained relatively stable over year-earlier levels.

Cambios and businessmen have recently voiced concerns over speculators who are holding US dollars and converting only when required, in a bet against the JMD amidst the delayed signing of a new deal with the International Monetary Fund - which the Jamaican Government says will happen by yearend.

Despite the BOJ's actions, the dollar depreciated by 1.5 per cent against its US counterpart in the June quarter and is now just shy of the J$90 mark.

"The increased pace of depreciation was principally influenced by an insufficiency of net private capital inflows to cover higher net demand for current account transactions. To augment supplies in the market, the Bank sold US$134.9 million (net) during the quarter," said the central bank in its latest Quarterly Monetary Policy Report issued late August.

The net US dollar sales represented a reversal of the US$97.3-million net purchase position a year earlier. The sales contributed to a decline of US$236.7 million in the net international reserves (NIR) for the quarter to US$1.54 billion.

"The Bank estimates that there was an increase of US$53.7 million in the net foreign currency demand to satisfy balance of payment current account transactions relative to the March 2012 quarter. This was largely related to a moderate increase in end-user demand to facilitate payments for imports, particularly in May," said the bank.

Post quarter, the NIR has fallen further to US$1.48 billion at the end of July.

The June net sales are not the largest done by the bank in a year but represent the fourth consecutive quarter of net sales:

• US$134.9 million June 2012 quarter;

• US$102.1 million March 2012 quarter;

• US$254.2 million Dec 2011 quarter; and

• US$252.3 million Sept 2011 quarter.

BOJ Governor Brian Wynter has said the foreign exchange market will stabilise and recover once foreign capital begins to flow into the country from multilateral sources, which he expects to happen after a deal is sealed with the IMF.