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(JAMAICA GLEANER) — The Bank of Jamaica (BOJ) has moved to explain the significant fall in the value of the local currency against the benchmark United States dollar in the recent weeks.
The Jamaican dollar opened trading at J$128.50 to US$1 on January 2.
Since then, the value of the local currency has been on a path of decline against the US dollar.
Trading ended today with the local currency being sold for J$137.06.
The BOJ said several firms are seeking to borrow funds in foreign exchange from the local capital market and this, combined with normal commercial demand, has led to increased demand and recent price movements in response.
The central bank underscored that these temporary gaps between demand and supply are normal in a market.
Noting that the country has more than adequate foreign exchange reserves, the BOJ said it stands ready to address these gaps when required.
It disclosed that the central bank today sold US$30 million to authorised dealers and cambios via its Foreign Exchange Intervention and Trading Tool (B‐FXITT).
The BOJ said this “flash sale” auction, follows a similar operation of US$20 million conducted on January 17, both of which, it says, are aimed at offsetting the effects of excessive daily volatility in the foreign exchange market in recent weeks.
“Gross foreign exchange earnings flowing into the economy have remained buoyant and as such, on the macro level, there is no shortage of foreign exchange,” the BOJ said.
The BOJ said players in the market should communicate with the central bank during periods of demand.
“It must be noted that efficient intervention and oversight of the market rely on the information the Bank receives from foreign exchange dealers, who in turn depend on the information they receive from their clients. While this flow of information has been improving, a lot more improvement is still needed. More foreign exchange users need to give their dealers advance notice of their intention to buy or sell foreign exchange. This will enable both dealers and the central bank to have a more complete picture of evolving market needs and be in a position to act on this information.”
The central bank also shared advice to businesses.
“Businesses are being strongly encouraged to use forward contracts with their dealers to manage their foreign exchange transactions. Fluctuations in the rate can be inconvenient, but it is those very fluctuations which create the opportunity for using forward contracts to manage foreign exchange transactions more efficiently and to plan more long term.”
The BOJ said the public should continue to expect an active foreign currency market and should adapt to the new realities.
“Temporary supply and demand conditions aside, we must be reminded that as of 2017, contrary to what we have been accustomed to, we have a new foreign exchange market which behaves differently.
“It is no longer a market in which the exchange rate drifts in one direction only, and as long as prevailing economic conditions remain as positive as they are, it is normal and to be expected that the exchange rate will keep fluctuating in both directions.”
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