Nov 2009 Financial News

BOJ assures market of continuity - Trading stable amid upheavals

Nov 04, 2009

The Bank of Jamaica weighed in Tuesday on the change in leadership at the central bank but confined its comments to an assurance to the market that investors could expect continuity in its operations, with no reference to policy prescriptions.

The outreach comes after two days of interventions in the foreign exchange market on Friday and Monday to steady the dollar, but brokers said the BOJ's return to the market was not the result of Derick Latibeaudiere's abrupt departure at the weekend but linked to seasonal demand for cash to pay for Christmas stock.

"The Bank of Jamaica wishes to assure the public that these changes will in no way affect the day-to-day operations of the central bank," said the BOJ in a statement referencing the interim leadership of senior deputy governor, Audrey Anderson and pending takeover by Brian Wynter as governor on December 1.

Anya Schnoor, president of the Jamaica Securities Dealers Association (JSDA) says the markets have been relatively calm, even with Monday's sovereign downgrade by Standard and Poor's to 'CCC' and negative outlook on the foreign and domestic debt.

As Jamaica's fiscal position worsens, S&P says the country is skating closer to a potential debt default.

What would totally derail confidence now, said Schnoor, is drawn out talks with the International Monetary Fund on the US$1.2 billion borrowing facility for Jamaica.

"Change always brings questions and creates some amount of uncertainty. This is evident from the downgrade by Standard and Poor's," said the JSDA president.

"It will be important for the GOJ to clearly demonstrate that it has a clear medium term fiscal strategy in place and to conclude the agreement with the IMF quickly."

The stock market

On the stock market, which has been caught in a web of volatility since the precarious nature of Jamaica's economy began to show in diminished company profits, the market was up by 156 points Monday, but down 77 points Tuesday.

The 0.9 per cent market decline Tuesday, erased $224 million of stock market wealth.

"The uncertainty surrounding these issues will not be positive for the markets. However, if the GOJ does not quickly seek to conclude an IMF agreement, instability could occur as persons lose confidence with the process," she added.

The foreign exchange market on Monday saw a slight movement in the JMD, which fell four cents to $89.20 on Monday, after closing at $89.24 on Friday. Both on Friday and Monday, the BOJ provided liquidity support to the market.

On Tuesday, the dollar closed up at $89.19, with no reports of an intervention, suggesting that S&P's negative take on internal developments had a relatively minor effect on the market.

Trades in the past three days ranged as high as $89.81, to a low of $84.62.

"We believe the resources and systems of the central bank - well established and well developed - will continue to enable it to achieve it's objectives in the FX and money markets. This especially with the NIR close to US$2.0 billion and anticipated IMF inflows which will give it the ability to quell any unusual pressure," said Clovis Metcalfe, managing director of FirstCaribbean International Bank Jamaica Limited.

"With a blend of banking, regulatory and capital markets experience, Brian Wynter has a long and distinguished career which speaks for itself. We are certain in his ability to execute the governorship functions and preserve confidence in the market."

Foreign currency purchases

On Monday foreign currency purchases totalled US$56.5 billion, while sales stood at US$59.9 billion. Within that total, volume purchases for the USD accounted for US$51.7 billion while US$56.9 was sold to the market.

Around this time last year, volume purchases of the greenback stood at US$59.5 billion while US$53.5 billion was sold.

At the same time, activities on the Jamaica Stock Exchange remains fairly undisturbed at the close of trade on Monday, with the three main indices advancing.

The markets appeared to have taken solace in the quick pushback from the Ministry of Finance against S&P's review that there was a growing risk of a distressed debt default.

Finance Minister Audley Shaw reaffirmed GOJ's commitment to honouring its debt, while calling S&P's assessment 'hasty and unwarranted'.

Public debt

Jamaica's public debt currently stands at $1.3 trillion, about half of which is owed to foreign investors and donors.

At least one investment house, Stocks and Securities Limited (SSL) agreed with the government, noting that the IMF and consensus among market watchers and traders that the downgrade seems premature.

So far, the fixed income and foreign exchange markets remain remarkably stable, SSL remarked.

A team from the IMF is in Jamaica finalising negotiations for the standby agreement, with an update on progress expected by the end of the week.

Jamaica is banking on an agreement being reached this month.

"We remain confident, changes in personnel recently reported in the news notwithstanding, that it will be able to continue being a stabilising force as Jamaica seeks to respond to a more challenging global economic environment," said Metcalfe.


Source:
Sabrina Gordon, Business Reporter
sabrina.gordon@gleanerjm.com
Wednesday November 4, 2009

http://www.jamaica-gleaner.com/gleaner/20091104/business/business1.html