‘Too bad’: BOJ governor unswayed by cries of FX losses by big firms

Amid rising interest rates and a stable Jamaican dollar, some listed financial companies are reporting lower devaluation gains, and even translation losses, on their foreign currency-denominated investments, ultimately constraining their profit out-turn.

But central bank Governor Richard Byles is unswayed, stressing that the general health of the Jamaican economy trumps individual company profits any day.

“To the extent that they are long in foreign currency and have not reaped devaluation gains, well, too bad. The country’s interest comes first, and the country’s interest is a stable exchange rate,” Byles said during the Bank of Jamaica, BOJ, quarterly media briefing.

The central bank head does not share the characterisation in some of the company earnings reports that the foreign exchange market has continued to be volatile. He noted that interest rates, which have gone up in response to the BOJ piling on 550 basis points to the policy rate over the last 11 month, since the end of September 2021, in a bid to cauterise rising inflation, have not adversely impacted the foreign exchange trading market.

“I guess their reference to volatility is that there was lower volatility, which is a positive thing in my opinion and an outcome that the BOJ welcomes. The amount of foreign exchange that has been traded is not any less. So, to the extent that they are trading and making a fee on the trades, means that their earnings would not be affected significantly by the rate,” Byles, once the head of a major financial conglomerate, said in response to a Financial Gleaner request for a comment on the matter during the briefing on Friday.

When the central bank started reversing its policy of maintaining a record-low policy rate of 0.5 per cent in September last year — initially tacking on 50 basis points to 1.0 per cent — the exchange rate was at $147.24 to the US dollar. By year end the JMD had settled at $155.09, after peaking in November at $158.30.

Currently, the rate of exchange is back to $151.56.

While the central bank is of the view that the Jamaicans generally appreciate the currency’s relative stability, Byles is concerned that many persons don’t seem to fully accept the role of rising interest rates in bringing about the stability.

“We had a long distance to go, once we saw inflation on the rise and likely to be at a high level for a while. We had to be aggressive, and we had to start early. We feel quite vindicated by it. We have mopped up liquidity … and we have raised interest rates, so that people will find investing in Jamaican-dollar securities as attractive as buying a foreign asset — and in that way keeping people out of the foreign exchange market and making the market stabilised,” said the central bank governor.

“So, interest rates have been really important in keeping the exchange rate stable, and therefore keeping price increases to as moderate a level as possible.”

He added that while there is a benchmark for foreign exchange market volatility that guides the central bank, there is no daily tracking of breaches.

BOJ Senior Deputy Governor Wayne Robinson added that the central bank keeps watch on trading activity to ensure there are no wild swings to disrupt to the market.

“We know that the Jamaican economy and Jamaican market cannot absorb and manage the kind of volatility that you see in advanced countries, or even larger emerging market economies. We want to ensure that whatever volatility affects the market does not cause any sort of dislocation, panic (or) cause people to worry about where the exchange rates is going, (and) does not impose a significant cost in doing business,” Robinson said.

“Some volatility is good. That is important for encouraging market depth. But what we are more concerned about is what is the excess volatility, and what we have tried to do over last year or so, is to dampen or remove a significant amount of that excess volatility,” he added.

huntley.medley@gleanerjm.com