Money market liquidity strengthening amid decline in J$

Durrant Pate/Contributor

Liquidity in the Jamaican dollar money market strengthened last week, amid a slight decline in the local currency.

Liquidity, as measured by the aggregated current balances held by Deposit-Taking Institutions (DTIs) closed the week at J$68.86 billion, up from J$57.73 billion posted in the previous week. Demand for Bank of Jamaica (BOJ) liquidity management instruments remained healthy even as the supply was significantly lower than the previous week thus underscoring continued appetite for short-term Jamaican-dollar investments. 

The BOJ’s 30-day Certificate of Deposit (CD) auction attracted J$26.76 billion in bids against an offer of J$10.0 billion, resulting in a 2.68x bid-to-cover ratio (2.10x in the previous auction). The stronger subscription came despite the BOJ reducing the amount offered by J$10.00 billion (-50.0%). 

Repo auction

The average yield on the 30-day CD Auction amounted to 5.55%, nine basis points below the 5.64% recorded in the previous week. The BOJ also conducted a 14-day repurchase agreement (repo) auction, which received J$2.00 Bn in eligible bids against an offer of J$2.00 billion. 

The auction’s weighted average yield decreased by nine basis points to 5.54%, suggesting participants demanded slightly lower returns for short-term liquidity. The Government of Jamaica’s July 8 Treasury Bill auction reinforced the ample liquidity backdrop. 

Investors placed roughly $6.28 billion in bids against the $2.20 billion on offer, an oversubscription of nearly 2.9x. All three tenors were fully allotted. Average yields settled at 5.37% on the 91-day, 5.47% on the 182-day, and 5.81% on the 273-day tenors.

FX market operations

In the Foreign Exchange (FX) market, the Jamaican dollar depreciated by 0.18%, with the USD selling rate moving from J$159.37 to J$159.65. The depreciation was likely driven by continued strong demand from end users and heightened uncertainty in the FX market. 

Buyers appear to be concerned about potential liquidity constraints that could put upward pressure on the exchange rate in the short term, particularly following the BOJ’s recent indication that it would intervene in the market only once in July (the 28th).