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JM | Jun 23, 2022

J$ appreciates amid tighter liquidity in money market

/ Our Today

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Market anticipates another rate increase by BOJ on June 29

(Photo: Twitter @CentralBankJA)

Durrant Pate/Contributor

The Jamaican dollar has appreciated by 0.76 per cent relative to the American dollar week over week.

As a result, the green back selling rate moved from J$153.87 on June 10 to J$152.71 on June 17.

This appreciation was due to high US dollar liquidity and high Jamaican dollar demand to carry out various obligations, as the Bank of Jamaica (BOJ) continues to reduce its lending of Jamaican dollars to the market.

Despite inflation dipping in May, it remains elevated at 10.9 per cent and is still well above the BOJ’s target range of four per cent – six per cent. As such, market analysts are anticipating that, for its June 29 meeting, the BOJ will increase the policy rate, as it continues its push to curb inflation.

This increase will likely carry the policy rate to 5.5 per cent.

These actions by the BOJ will continue to reduce Jamaican dollar liquidity, which is already tight.

As Jamaican dollar liquidity continues to tighten, this will intensify competition for cash by market players such as deposit taking institutions (DTIs) in order to maintain their liquid asset ratios.

Money market rates to remain elevated

Against this background, market rates are anticipated to remain elevated. As at June 16, 2022, a total of J$15.96 billion was in the market, as reflected in the BOJ’s aggregate current balances, representing a 56.2 per cent falloff from the J$36.4 billion that was in the market on June 9.

Owing to this, market players were once more mainly square last week, although some players were liquid due to maturities on their portfolios. The average yield from the BOJ’s competitive auction also remains elevated.

However, it continued to decline for the second week to 7.30 per cent relative to 7.48 per cent in the prior week. The highest bid for full allocation was 7.50 per cent.

On the other hand, the US dollar money market will remain stable despite market activity changes, including the 75bps increase from the Federal Reserve. Stable inflows from remittances and additional BFXITT auctions by BOJ to sterilise Jamaican dollar liquidity will support stability in the market.

NCB Capital Market, Jamaica’s biggest money market player, is of the view that the BOJ will continue to bolster liquidity via BFXITT auctions as it seeks to bring inflation back within target. Broker market demand for USD remains at 30-days and longer-tenured funds, with some brokers offering as high as 5.00 per cent to clients.

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