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Bank of Jamaica (BoJ) to stick with US dollar reserves
published: Wednesday | May 31, 2006
Ashford W. Meikle, Staff Reporter
LATIBEAUDIERE
THE GOVERNOR of the Bank of Jamaica (BoJ), Derick Latibeaudiere, says that the central bank will continue to maintain Jamaica's net international reserves (NIR) in U.S. dollars.
"The U.S. dollar is Jamaica's intervention currency and anything else is a speculation on the movement of other currencies and which we cannot entail," said Latibeaudiere at yesterday's quarterly press briefing at the central bank's downtown Kingston office.
The governor was responding to a query raised about the possibility of BoJ diversifying the NIR into other currencies, including gold.
An asset of the government, the reserves are the foreign currency deposits held by a country's central bank and is frequently used to intervene in foreign exchange markets as a means to control the exchange rate. Most countries - roughly two-thirds - maintain their international reserves in U.S. dollars. In Jamaica the NIR stood at US$2.151 billion at the end of April, representing an estimated 24.6 weeks of goods and services imports.
Elaborating on the BoJ's position, Latibeaudiere noted the difficulties in maintaining the NIR in different currencies. "[If] we do that we are going to have to look at a basket of currencies against ... which the Jamaican dollar will be pegged and the truth is that any movement in any currency outside of that will impact your position vis-à-vis the U.S. dollar so you have to be very careful."
REVERSING POLICY
However, he did not rule out the possibility of the central bank reversing its policy.
"It's nor something that we should rule out - it's something that we should look. But so long as the U.S. dollar is the intervention currency then it is in the central bank's interest to maintain its reserves in U.S. dollars."
At yesterday's press briefing the central bank governor - citing positive economic developments in the first quarter of the calendar year - remained optimistic about the country's economic outlook.
"We are upbeat about the medium prospects," he said, pointing to the sharp decline in inflation, the stability in financial and foreign exchange markets and the maintenance of the international reserves. But, while he maintained a positive outlook Latibeaudiere worried that "The banks' main inflation concern for this quarter is the continued volatility of oil prices ... and the threat of extreme changes in weather conditions."
Core inflation for the March quarter was 0.8 per cent, while the 2005/2006 fiscal year inflation was 4.95 per cent and annual point-to-point inflation was 1.4 per cent at the end of March. A slight spike in inflation is expected for the second quarter. But, as Latibeaudiere, pointed out, "This spike is seasonal and ... is expected to be much lower than the 5.7 per cent increase seen over the same period last year largely because of the overall stronger performance of agriculture that we expect." He pointed out that if wage settlements remain contained and if oil prices average US$73 per barrel, "The forecast for the fiscal year indicate that headline inflation should be in the range of 9 to 10 per cent."
The BoJ governor noted that "Economic activity is expanding, inflation is falling fiscal consolidation is continuing, and the financial system remains robust. The growth in world demand and the investments taking place locally also signal the prospects of even stronger and more sustainable growth in the medium term." He pointed to growth being driven by expansion in agriculture, mining, basic services and miscellaneous services, including tourism.
REMOVIMG LONG-TERM OPEN MARKET INSTRUMENTS
Mr. Latibeaudiere also defended the bank's decision to remove the long-term open market instruments, specifically the 270-day and 365-day tenors.
"What we are trying to do is return to a more conventional central banking position where the instruments that we operate are of a shorter tenure so that when you have an interest rate adjustment they only stay in the system for a limited period of time. When you have it a long term, they tend to stay in the system for a longer time, and central banks ideally like to operate with shorter term instruments so that it can effect monetary policies to deal with circumstances and have it impact and come out of the market."
published: Wednesday | May 31, 2006
Ashford W. Meikle, Staff Reporter
LATIBEAUDIERE
THE GOVERNOR of the Bank of Jamaica (BoJ), Derick Latibeaudiere, says that the central bank will continue to maintain Jamaica's net international reserves (NIR) in U.S. dollars.
"The U.S. dollar is Jamaica's intervention currency and anything else is a speculation on the movement of other currencies and which we cannot entail," said Latibeaudiere at yesterday's quarterly press briefing at the central bank's downtown Kingston office.
The governor was responding to a query raised about the possibility of BoJ diversifying the NIR into other currencies, including gold.
An asset of the government, the reserves are the foreign currency deposits held by a country's central bank and is frequently used to intervene in foreign exchange markets as a means to control the exchange rate. Most countries - roughly two-thirds - maintain their international reserves in U.S. dollars. In Jamaica the NIR stood at US$2.151 billion at the end of April, representing an estimated 24.6 weeks of goods and services imports.
Elaborating on the BoJ's position, Latibeaudiere noted the difficulties in maintaining the NIR in different currencies. "[If] we do that we are going to have to look at a basket of currencies against ... which the Jamaican dollar will be pegged and the truth is that any movement in any currency outside of that will impact your position vis-à-vis the U.S. dollar so you have to be very careful."
REVERSING POLICY
However, he did not rule out the possibility of the central bank reversing its policy.
"It's nor something that we should rule out - it's something that we should look. But so long as the U.S. dollar is the intervention currency then it is in the central bank's interest to maintain its reserves in U.S. dollars."
At yesterday's press briefing the central bank governor - citing positive economic developments in the first quarter of the calendar year - remained optimistic about the country's economic outlook.
"We are upbeat about the medium prospects," he said, pointing to the sharp decline in inflation, the stability in financial and foreign exchange markets and the maintenance of the international reserves. But, while he maintained a positive outlook Latibeaudiere worried that "The banks' main inflation concern for this quarter is the continued volatility of oil prices ... and the threat of extreme changes in weather conditions."
Core inflation for the March quarter was 0.8 per cent, while the 2005/2006 fiscal year inflation was 4.95 per cent and annual point-to-point inflation was 1.4 per cent at the end of March. A slight spike in inflation is expected for the second quarter. But, as Latibeaudiere, pointed out, "This spike is seasonal and ... is expected to be much lower than the 5.7 per cent increase seen over the same period last year largely because of the overall stronger performance of agriculture that we expect." He pointed out that if wage settlements remain contained and if oil prices average US$73 per barrel, "The forecast for the fiscal year indicate that headline inflation should be in the range of 9 to 10 per cent."
The BoJ governor noted that "Economic activity is expanding, inflation is falling fiscal consolidation is continuing, and the financial system remains robust. The growth in world demand and the investments taking place locally also signal the prospects of even stronger and more sustainable growth in the medium term." He pointed to growth being driven by expansion in agriculture, mining, basic services and miscellaneous services, including tourism.
REMOVIMG LONG-TERM OPEN MARKET INSTRUMENTS
Mr. Latibeaudiere also defended the bank's decision to remove the long-term open market instruments, specifically the 270-day and 365-day tenors.
"What we are trying to do is return to a more conventional central banking position where the instruments that we operate are of a shorter tenure so that when you have an interest rate adjustment they only stay in the system for a limited period of time. When you have it a long term, they tend to stay in the system for a longer time, and central banks ideally like to operate with shorter term instruments so that it can effect monetary policies to deal with circumstances and have it impact and come out of the market."