BFXITT deepening FX market – BOJ Governor

After introducing B-Fxitt in July last year, an auction system that offers US dollars for sale to authorized dealers by Bank of Jamaica that helped to smooth out flows in the market. The central bank will for the first time be buying funds from the market this week.
The first such auction will be on Wednesday this week, in which they are offering to buy US$5 million. The following week, the central bank of offering to purchase US$12 million and US$15 million the week following.
For a market that many Jamaicans view suspiciously any change or introduction of something new is often greeted with cynicism and viewed as a political tool to stave off public outcry about devaluation. Jamaicans have seen and felt the full impact of devaluation of the local currency in the driving up of prices and making it difficult for them to meet their needs. Changes that make it appear that the system is being manipulated to make believe things are better than they are, are viewed suspiciously. Devaluation is seen as a tool that favours the moneyed class and against the masses. The truth is that the country has never been adequately informed on the reasons and requirements for keeping the currency relatively stable, even as it is subject to market forces.

Last year, the local dollar lost value in which it required more than 131 Jamaican dollars to buy one US dollar. The B-Fxitt auction system made funds available to the market based on an announcement of amounts to be auctioned over a four weeks’ period. The local dollar started to appreciate some times after the introduction of the new system until the end of the year, even as Bank of Jamaica stopped selling at the end of November. Having reached J$125 to the US dollar by the end of 2017, buying pressure saw it rising to more than $128 in March. After BOJ had two auctions in the month amounting to US$40 million in total, the rate has fallen back to just over J$125 to the US dollar, last week.
“We decide on the amounts to be auctioned based on market intelligence. This is based on information as to supply and demand provided by dealers and their clients. The central bank analyses the data to assess liquidity in the system,” the governor of the Central bank stated in a briefing on Friday explained how they determine the amounts to be auctioned. The governor further stated that the “feedback provided a loop of information for both the BOJ and dealers” in assessing demand and supply.

Wynter said that the country’s current account is running at a small deficit which is sustainable as it relates to capital movements which are funded. For 2018, the current account is expected to grow above what was originally expected, due mostly to increase in capital spending, by the private sector.
“The country had better start getting used to the two way movement that we have seen since last year,” Wynter states. For him the, strong fiscal performance and the government’s commitment to maintaining it is critical to maintaining the balance. Added to that is the increased confidence within the wider society about the economy. The two way movement within a short time frame must be causing sleepless time for people holding US dollars as they are unsure what the rate will be from time to time. Wynter is of the view that the changes make by the central bank are already reducing the dollarization in the system. The governor sees more of that taking place going forward as investors look locally to other better paying investments options.
There will be more reduction in the surrender requirements of the central bank. The bank cut 10 percentage points between late last year and this year. Wynter indicates that another reduction is coming in the current quarter and ultimately there will be no more surrender requirements with BOJ using their auction system to buy and sell in the future. The change here makes more funds available in the foreign exchange market.
Going forward, the market will be deeper, provide more choices and greater liquidity Wynter stated.