Jamaican Central Bank Steps In To Prevent Forex Instability
The Bank of Jamaica (BOJ) recently sold US$55 million as part of its ongoing efforts to stabilise the foreign exchange market in the country. The sale was prompted by a fall in the Jamaican dollar’s value to $127 against the US Dollar. The central bank has previously stepped in during April and again in May when the country’s currency went beyond the psychologically important $125 mark vis-a-vis the US dollar. The US Dollar was selling at an average of $126.38 on 25th July, but it went down to $127.03 on the 16th of August.
Industry experts say that the Jamaican currency is “flying”, but BOJ Governor Brian Wynter begs to disagree. While he admits that the exchange rate has been very volatile this fiscal year especially during the months of April and May, he also said that the measures taken to settle the exchange rate have worked. He went on to clarify that the movements were driven by a few capital transactions that were larger than usual and not ordinary transactions for businesses. According to Wynter, the exchange rate had stabilised after the unusual transactions were over. It needs to be pointed out here that the demand and supply for foreign exchange in Jamaica has mostly been driven by the balance of payments current account.
After the former Governor, Derick Milton Latibeaudiere resigned on 30 October 2009, Audrey Anderson who is the senior deputy governor, was in charge of the bank until Wynter was named the new Governor.
Wynter was previously the Deputy Governor and assumed position as the Governor on 1 December 2009. He is a financial regulator who is notable for his work with the Financial Services Commission.
The 13th International Monetary Fund Extended Fund Facility
The BOJ Governor was at a press conference organised at Jamaica House as part of the 13th International Monetary Fund Extended Fund Facility. He had to face many questions regarding the downward movement of the currency from its position of approximately $125.50 against the US Dollar just a fortnight prior to that. He assured the questioners that the exchange rate had indeed slid a bit, but also that the bank was monitoring its movements very carefully. He also said that the bank would definitely step in at the earliest indication that the market was heading towards instability.
The BOJ had reacted to a drop in the exchange rate by selling quantities of foreign exchange starting Tuesday. The central bank would continue with its policy of intervening in the market in order to ensure that end users would get an uninterrupted flow of funds.
Wynter also said that the bank would take steps to settle the exchange rate only after examining the reasons for it. The bank would ensure that the balance of payment in the current account would always be healthy in order to ensure that imports and exports could happen without interruption and at a reasonable price.
The current account of Jamaica’s balance of payments was short of three percent of the country’s GDP, which means that it could be covered by foreign direct investment inflows. Since the instability in the economy has been corrected with an intervention amounting to US$55 million this week, the currency’s value has stabilised as per plan. The 28 April intervention amounted to US$95 million and was the largest at that point. It was followed by a US$60 million sale on 20 May.
The BOJ estimates that the current account deficit will not move beyond three percent of the country’s GDP during 2016-17.
The BOJ opened on 1 May 1961 and is located in Kingston. On the instruction of the Minister of Finance, it is responsible for the monetary policy of Jamaica.