BOJ exits the forex market after buying US$10.85m from dealers
Bank of Jamaica, BOJ, exited the foreign exchange market this week after buying up more than US$10 million, saying it was satisfied that demand and supply could be met for the remainder of the year, in what is a peak season for spending, without putting its finger on the scale.
The central bank first announced its intentions back in mid-November and reaffirmed its temporary exit in a new press release on Tuesday.
But its retreat is conditional.
On Wednesday, in an interview with the Financial Gleaner, BOJ Senior Deputy Governor John Robinson said the decision could be rescinded with the right triggers. He was responding to queries on whether the current trajectory of the foreign exchange rate could be a game changer in the central bank's calculations.
The Jamaican dollar in August traded as low as $137.9635 against its main trading counterpart, the USD, but had regained substantial value up to November 19, when it appreciated to $126.4650. It's been on the decline since and was trading at $128.5781 at midweek.
The JMD's march above $137 had sparked panic in some quarters, but the central bank rejected suggestions that it adopt measures to reign in the currency, while assuring the public that B-FXITT was working as intended and that two-way movements of the foreign exchange rate would be the norm under the market-driven auctions.
BOJ's current decision to stay out of the market for the remainder of the year, the central bank said in its release on Tuesday, was informed by a weekly estimate of foreign exchange market flows, "guided by market intelligence data and daily chats with market participants".
All indications are that the market is in balance, with adequate supply to meet demand, the BOJ said.
Robinson said conditions that might warrant further intervention are unlikely to occur in December, noting that the pre-Christmas period is typified by higher remittance inflows, and Jamaicans flying home for the holidays - implicit to the latter is the expectation that the holidaymakers would be bringing foreign currency with them.
It is only towards the very end of the period that supply is expected to be impacted by merchants looking to accumulate cash for new year imports, the central banker said.
BOJ data affirms that annually, the highest remittance inflows occur in December. In the past three years, 2015 to 2017, those flows amounted to US$210.9 million, US$222.3 million and US$218.2 million, respectively.
As to the current depression of the JMD's value, Robinson said it may be due to nothing more than foreign exchange holders reserving supplies for the BOJ buy auction that was held on Wednesday.
The bank executed the US$10-million purchase operation on December 5 after announcing it from November 13. Over the four-week period in the run-up to the auction, the value of the Jamaican dollar moved from $126.77 to $127.91 against the USD.
This week's purchase, said Robinson on Wednesday, was prompted by the perception of some oversupply in the market. The results of the auction, he said, would tell whether that assessment was correct, once the bids are settled - which was due to happen by Thursday.
Initially, BOJ reported 16 bids amounting to US$8.85 million, which was well below its target. But the central bank later adjusted the results of the auction, saying three bids had not been counted because of technical glitches.
The final results indicated that there were 19 bids amounting to US$10.85 million. BOJ accepted all 19, for which it paid an average price of $129.22.
Robinson reiterated Wednesday that while BOJ intervenes in the market periodically through its B-FXITT auction tool, the central bank wants to get to a place where it participates less and less, and forex traders conduct more transactions with each other.
In the meantime, he added, the auction offers foreign exchange holders an opportunity to dispose of some of their reserves.
The market, he noted, should by now by acclimatised to the two-way movement of the dollar. For 2018, the rates have traded at different times with a range of $124 to $137.
In the last 11 months, the JMD was at its strongest on January 8, when it was valued at $124.55, and at its weakest on August 23, when it sank to $137.96.