The Bank of Jamaica has pumped 230 million US dollars into the FX market so far this year and it’s only February. What’s going on?
Jamaica’s US dollar foreign exchange rate is easily the most watched FX rate in the country. The J dollar ended trading on February 14 at 158 dollars and 20 cents to one USD.
That’s 57 cents more than the week before. If you’re wondering why the dollar goes up, it’s because of supply and demand.
If there’s more demand for US dollars than there is supply, banks can charge more to sell them. That causes the JMD to depreciate against the USD.
Now the BOJ doesn’t want the dollar to depreciate rapidly. So when they see that there’s pressure on the JMD, they can intervene by releasing more USD into the market. Where do they get these US dollars? You ever heard of the Net International Reserves (NIR)? That's what is for. Right now Jamaica has over 5 billion USD in the NIR.
The BOJ sells the reserves through an auction system called B-FIXTT, which eases the pressure on the FX rate.
The Central bank has pumped about US$230 million into the economy so far this year. You’re probably like me and thinking, who's! That sounds like a lot especially since we’re not even through February yet.
But Senior Trader at JMMB, Andre Reid explained on Taking Stock that it’s not cause for concern.
He explained that there’s been a moderate to strong demand for US dollars over the past couple of months, which makes sense since businesses were buying for the holiday season.
But what the BOJ wants is orderly currency movements, in either direction.
According to Reid, while 230 million sounds like a lot in a few weeks, once corporations pay their taxes due in March, there will be an influx of Jamaican dollars on the market and a higher demand for Jamaican dollars.
This will ease some of the demand for US dollars.
That will lead to revaluation.
However, the demand for US dollars may pick back up in the summer when businesses prepare for back-to-school.
And that’s the bottom line.
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