What’s BOJ up to in FX & money market?

In Friday’s foreign exchange trading, authorised dealers bought much more foreign exchange than they sold and in a late after hours release, Jamaica’s central bank again decided to mop up more local funds from the financial system.

The timing of the release isn’t isolated from the developments in the foreign exchange market. It seems that the CD issue is linked to what the central bank may consider to be holding of a long position in US dollar by financial institutions. According to the release from the bank, the issues are “to augment its liquidity management operations, the Bank of Jamaica will be offering two variable rate instruments commencing Monday, 01 July 2013 to Thursday, 04 July 2013. The release comes against the back drop of the day’s trading when authorised dealers bought more than US$32 million and sold only US$24.5 million with the rate for the US dollar hardly trading.

The instruments being offered are:

1. Variable Rate Certificate of Deposit 2013(D) which was originally issued on 12 June 2013 and is now being re-opened for a limited nominal amount of $2.0 billion. The tenor for the re-opened instrument is 164-days. This instrument maintains the original issue terms, viz, the initial coupon is 6.77 per cent per annum up to the first interest payment date on 12 September 2013 and re-prices quarterly at 0.15 percentage point above the three month GOJ Treasury Bill rate for the next interest payment date up to the maturity date on 12 December 2013.
2. A 365-day Certificate of Deposit, for an unlimited amount. The instrument re-prices quarterly at 0.23 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period. The initial coupon for the first three months is 6.99 per cent per annum.

These offers are extended to all Primary Dealers and commercial banks, from 01 July 2013 to 04 July 2013. The term sheets for these Certificates of Deposit will be circulated via electronic mail to all Primary Dealers and commercial banks.

The Bank says they will continue to offer its regular 30-day Certificate of Deposit at the current interest rate of 5.75 per cent per annum.

This is the third CD offering within a month and is in conflict with the view that the government wants the rate of the Jamaican dollar to fall as well as utterances from government’s spokesmen that the continuing devaluation is to ensure that the country has a competitive exchange rate. The measures are meant to tighten liquidity which means that there will be less Jamaican dollars  available to purchase foreign exchange thus resulting in either stability in the exchange rate or a revaluation of the currency.

Read more about the BOJ’s intervention in the FX market, Market demand is not driving J$, BOJ is click here.