The Bank of Jamaica (BOJ) has announced its decision – with effect from 18 March 2020 – to remove the limits on its Standing Liquidity Facility (SLF) and increase limits for authorised forex dealers.
The limit on the foreign currency net open positions (FXNOP) of authorised dealers will be temporarily increased by five percentage points to +/-25 per cent of regulatory capital denominated in Jamaica Dollars, effective 19 March 2020.
The BOJ said this temporary increase will remain in effect until 30 June 2020.
“The FXNOP limit is calibrated to ensure adequate levels of liquidity in the foreign currency market.”– Bank of Jamaica
It said the decision to temporarily increase the limit is based on the prevailing market conditions. All other guidelines relating to the FXNOP limit remain unchanged.
The BOJ said it will continue to monitor the implications of financial market developments and will appropriately adjust FXNOP limits in accordance with the Bank’s objective of maintaining financial system stability.
The Bank said it has been acting to assure financial institutions of adequate access to both foreign currency and Jamaica dollar liquidity, throughout this challenging period.
It expects a contraction in the availability of the US currency because of the impact of spread of the virus on the tourism industry and remittances.
The BOJ said it would also be increasing swap arrangements.
It reports having done two such swaps, to date.
The BOJ has included in its plans the removal of limits on the amounts that deposit taking institutions (DTIs) borrow overnight without being charged a penal rate.
Additionally, overnight liquidity support will be made available at the prevailing rate of 2.5 per cent, limited only by collateral. These lending arrangements can be backed by GOJ and BOJ securities.
In relation to the will Standing Liquidity Facility, the BOJ said that Excess Funds Rate (EFR) (which was the rate on amounts in excess of the SLF limits) will no longer be applicable.
The applicable interest rate for accessing the SLF will continue to be 2.50 per cent which is 200 basis points above the BOJ policy rate, currently at 0.50 per cent.