By McPherse Thompson, Assistant News Editor
Campbell concerned about impact.
THE BANK of Jamaica (BoJ) yesterday moved to reverse the continued slide in the value of the local currency against its United States counterpart by introducing a 150-day reverse repurchase instrument at interest rate of 30 per cent.
However, Raymond Campbell, president of the Jamaica Bankers Association, has expressed concern over the possible long-term impact of the measure, saying "it will have a disruptive impact on the financial markets".
It was the second time in a month that the central bank, apart from periodically selling US dollars in the market, has put in place corrective measures to shore up the value of the Jamaican dollar. Last month, it introduced a special five per cent deposit for commercial banks and other institutions licensed under the Financial Institutions Act, a measure that only placed a temporary halt in the movement of the local currency and led to yesterday's action.
In a release, the BoJ said the instrument was being introduced in a context of significant Jamaica dollar liquidity and protracted instability in the foreign exchange market. "It is intended to be a temporary measure, which will be removed as soon as the corrective fiscal action being developed by the Government takes effect," the central bank said.
The latest move has so far had a positive effect on the Jamaican dollar, reflected in a gain of 59 cents on the BoJ's weighted average rate at the end of trading yesterday. On Friday, the weighted average rate was $53.78 against the $53.19 recorded yesterday. However, the US dollar was sold for a high of $54.30 yesterday, the same as last Friday.
On the other hand, the BoJ action has had a negative impact on the equities market.
Kiesa Ansine, equities analyst at Mayberry Investments, said that on Friday the Jamaica Stock Exchange (JSE) index peaked at 46,245.38 points, but fell to 44,907.37 points yesterday, 2.89 per cent down from its peak since the start of the year.
She said the volume traded yesterday was above average, triggering speculation that investors were cashing stocks to take advantage of the 30 per cent money market instrument.
Ms. Ansine said that while the BoJ introduced the special instrument in the context of instability in the foreign exchange market, "it's not only having an impact on that market, but is having a negative impact on the equities market, if today's trading is any reflection".
Some investment dealers were cautiously optimistic that the latest move would result in stability in the foreign exchange market, but others felt it was the wrong decision.
In questioning the timing of the BoJ's move, an investment adviser, who preferred not to be named, dismissed the central bank's justification, saying, "There is no Jamaican dollar liquidity that I see."
According to the adviser, the BoJ's action at this time "is a bit shocking". He said that if it was intended to combat the movement of the dollar, "this action should have come in earlier than now".
He suggested that another course of action could be to further increase the special deposit requirement introduced in January by another 2.5 per cent. "I think it's a mistake and we're going to pay dearly for it," he said, emphasising that "there was no need for them to do that at this point in time. I would have expected to see something like this in March when there are a lot of maturities because February is a dry month."
In a telephone interview yesterday, Mr. Campbell said the BoJ has chosen that course of action because of continued pressure on the exchange rate over the past four or so months.
He added that the pressure has been greater than expected in an ordinary foreign exchange market, and the special five per cent deposit requirement on commercial banks "had very limited impact".
However, Mr. Campbell felt "the underlying cause of all of this is that we, as a country, continue to run a fiscal deficit which has not been addressed, and that has resulted in increased Government borrowings in the market, whether local or foreign currency, with the consequent reaction that there has been some loss of appetite by the market in general to hold Jamaican dollars as against holding US dollars."
He said BoJ governor, Derick Latibeaudiere, at a meeting with bankers yesterday to explain the latest intervention, gave no indication that the five per cent requirement would be removed as a result of the latest action.
Mr. Campbell said the Bankers Association was of the view that action must be taken to address the fiscal deficit. "The association believes that the revenues of the Government must cover the cost of running the Government. We, as an association, are not going to make any statement about what revenues, if any, are to be adjusted, or what expenditure, if any, needs be dropped. It's a matter of prudent management that says you cannot spend more than you earn."
Neither Mr. Campbell, the BoJ, nor Ministry of Finance and Planning officials could say what specific corrective fiscal actions were being contemplated by the Government. The Bankers Association president said, however, they trust the Government "will include measures to address the imbalance that exists in revenue collection so that tax collection from the informal economy will be effective".
