Posted March 09, 2018
The Bank of Jamaica, BOJ, says it is now in a position to roll out the buying operations of its foreign exchange auction system, the Foreign Exchange Intervention and Trading Tool, or B-FXITT.
While the central bank indicated that it will be selling a total of US$40 million into the market on March 7 and 14, its advanced schedule did not indicate that it will be buying during market operations in March.
In emailed responses to Financial Gleaner queries, the BOJ said the earliest the buy side of the operation could commence was March 28, allowing for the four-week leeway needed by the central bank to notify the market. However, it said no buying transaction was scheduled for that date.
The central bank said B-FXITT gives four weeks notice of pending activity, even in circumstances where there are no transactions scheduled.
It said buying and selling operations would not be conducted simultaneously, but did not respond up to press time on whether it will be done in alternate weeks.
The decisions to conduct a buy operation, BOJ added, will also be driven by market intelligence and the bank's assessment of market conditions, as has been the case since the sell operations began on July 26, 2017.
BOJ said the rules of the buy operation are similar to those of the sell operation and that participation by authorised dealers and cambios is not mandatory.
"It is important to note that the bank has been purchasing foreign exchange from the market on a regular basis through the surrender arrangements and, therefore, B-FXITT buy operations will not fundamentally change market dynamics," the BOJ said in a release. "The difference is that using the competitive auctioning process of B-FXITT to buy foreign exchange from the market is a more modern, efficient and transparent approach."
Regular buy operations using B-FXITT are intended to gradually replace the bank's purchases through the surrender arrangement, whereby authorised dealers are required to sell to the central bank 20 per cent of their daily gross purchases and cambios 15 per cent.
Those surrender requirements are based on reductions from 25 per cent by the BOJ in October 2017 and on February 7 this year.
"Ultimately, as the market deepens and supply conditions continue to improve, it is expected that dealers will begin trading more among themselves to source or sell funds for clients instead of depending on central bank intervention, thereby allowing the bank to reduce its footprint in the foreign exchange market," the BOJ said.
"In addition to reductions in the surrender arrangements to boost foreign exchange liquidity, Bank of Jamaica's readiness to introduce the buy side of B-FXITT follows an update to the B-FXITT rules to accommodate these operations," the release noted.
Asked what impact the buying operations are expected to have on the foreign exchange rate, BOJ said it has been purchasing foreign exchange from the market on a regular basis through the surrender arrangements and, therefore, B-FXITT buy operations would not fundamentally change market dynamics.
"Therefore, there should not be any fundamental impact on the exchange rate, as this is not an increase in the bank's purchase volume, but simply a change in the method of purchase," the central bank added.