US dollar money market remains stable and moderately liquid

Durrant Pate/Contributor

The Jamaican dollar depreciated by 0.33 per cent, relative to the American dollar week over week with the greenback selling rate moving from J$154.09 on October 28 to J$154.60 at the end of the week.

The fall comes even as the Bank of Jamaica (BOJ) intervened in the foreign exchange (FX) market with a total injection of US$60 million last week, which helped to stem the depreciation. This intervention was carried out to shore up supplies to meet the high demand for the US dollar.

The increased demand for the American dollar stemmed from retailers and wholesalers bolstering inventory levels in anticipation of the increased demand associated with the Christmas season.

Consequently, the US$60-million liquidity injection aimed to stabilise the market and help bring it toward equilibrium.

Activities in US money market

The US dollar money market remains stable and moderately liquid. Broker market demand for the greenback remains at 30 days and longer-tenured funds with some brokers offering higher rates for one-year funding to clients. The BOJ intervened in the FX market twice last week, using its BFXITT tool, offering US$30 million in each instance.

Both auctions were approximately two times oversubscribed. With regard to the local money, a total of J$13.9 billion was in the market last week, as represented by the BOJ’s aggregated current balances. This represents a decline of J$17 billion from J$26.1 billion in the market the week before.

The BOJ’s intervention in the US market with sales of hard currency, saqw J$9.2 billion withdrawn from the market last week, contributing to the reduction in market liquidity. Against this background, Jamaican dollar liquidity remains tight. Competition for cash among market players remained intense.

Consequently, rates are expected to remain elevated this week. Market players were mainly square this week with very limited overnight lending.