Durrant Pate/Contributor

The Bank of Jamaica (BOJ) last Friday (October 7) intervened in the local foreign exchange (FX) market to the tune of US$30 million, as it seeks to defend the local currency.

However, this was unable to stop the Jamaican dollar depreciating by 0.87 per cent relative to the US dollar week-over-week with the greenback selling rate moving from J$152.82 on September 30 to $154.15 on October 7.

Higher demand for the US dollar contributed to the depreciation. The BOJ liquidity injection of US$30 million to augment market supply of the US dollar did little much to stop an ever bigger depreciation of the local currency.

More injections coming

Further liquidity injections are expected for the coming week to help increase the supply of US dollars to the market during this high demand period to purchased holiday suppliers. The US dollar money market remains stable and moderately liquid with broker market demand for the green back remaining at 30-days and longer-tenured funds.

The BOJ’s intervention in the FX market last week with the sale of US$30 million removed about J$460 million from the market. As for the Jamaican dollar money market, a total of J$20.57 billion was in the market, as of October 6, represented by the BOJ’s aggregated current balances.

This represents an J$8.45 billion week-over-week decline in the aggregated closing current account balance for deposit taking institutions (DTIs). Jamaican dollar liquidity remains tight, leading to continued high levels of competition for cash by market players.

Consequently, rates are expected to remain elevated, especially considering the BOJ’s recent 50 basis points hike in its policy rate to 6.5 per cent on September 29.

Market players mainly square last week

Market players were mainly square last week with very limited overnight lending. The average yield from BOJ’s competitive price auction improved slightly to 7.54 per cent relative to 7.41 per cent in the prior week.

Bids received totalled J$21.5 billion relative to an offer size of J$15 billion. The highest bid rate for full allocation was 8.15 per cent.