Foreign exchange market remains relatively stable – BOJ

Bank of Jamaica (BOJ) Governor Richard Byles says this partly reflects actions taken by the BOJ, through its Monetary Policy Committee (MPC), in response to higher inflation than foreseen.

The Statistical Institute of Jamaica (STATIN) reports that inflation for the 12-month period ending April 2022 was 11.8%.

Speaking at the BOJ’s digital quarterly press conference on Tuesday, May 24, Byles said the MPC, which met earlier this month, voted to raise the policy rate by 50 basis points. additional, at 5%, from May 20, 2022. .

“This current decision has resulted in a cumulative increase in the policy rate of 450 basis points since October 2021 and has taken [it] close to the level that the Committee deems appropriate,” the BOJ Governor further indicated.

Byles said the committee also made the decision to pursue other measures to contain the expansion of Jamaican dollar liquidity and maintain relative stability in the foreign exchange market.

“In addition to these key rate increases, the BOJ has sold approximately US$552 million in the foreign exchange market since October 2021, more than double the amount…compared to the previous corresponding period. In addition, the bank has adjusted net open position limits for depository institutions (DTIs),” he noted.

The governor said these actions have helped maintain exchange rate stability since the start of November 2021 and have been key to preventing a further rise in inflation.

“Notwithstanding these actions, on May 17, 2022, Jamaica’s gross international reserves remained substantial, amounting to approximately $4.3 billion. The Bank expects gross reserves to remain adequate over the medium term. The MPC noted that the Bank’s strong international reserves enhance its ability to support the foreign exchange market, as needed,” Byles added.

He said the bank’s current decision is based on its forecast of further increases in inflation over the next two months before it begins to decline.

“This forecast is, however, conditional on our assumption that tensions between Russia and Ukraine do not escalate and that inflation falls among Jamaica’s trading partners,” the governor noted.

He said the Bank expects the measures to continue to drive up interest rates on deposits and loans, “making Jamaican dollar savings more attractive relative to foreign currency assets, and more expensive Jamaican dollar loans”.

“In turn, these measures will help reduce demand for foreign exchange, leading to continued exchange rate stability, and reduce demand in the economy, limiting the ability of businesses to pass on price increases to consumers.” , added Byles.

In the meantime, the Governor has indicated that DTI’s balance sheets have remained adequately capitalized and in line with prudent liquidity standards.

“At the same time, non-performing loans remain well below our threshold of concern and continue to be fully covered by DTIs. All of these indicators point to the overall stability of the financial system,” he stressed. .

Byles also indicated that credit to the private sector provided by DTIs has increased, albeit at a relatively slow pace.

This, he pointed out, reflects the lagged effect of the pandemic on demand, especially from businesses.

“I wish to reaffirm Bank of Jamaica’s commitment to use all the tools in its power to fulfill its price stability mandate, including making Jamaican dollar assets more attractive, maintaining tight liquidity controls and maintaining stability in the foreign exchange market. The bank will continue to closely monitor the global and domestic economic environment and base future policy decisions on incoming data,” he said.