The Jamaica Bankers Association

THE BANK of Jamaica (BoJ) reduced interest rates yesterday, by withdrawing a special reverse repurchase instrument it introduced into the market only five days ago.

The move was made in response to a curb in the slide of the Jamaican dollar against its United States counterpart, especially since Tuesday, the day after the central bank introduced the special five-month open market instrument at interest rate of 30 per cent.

A release from the BoJ yesterday said, "the decision to remove this instrument comes against the background of tight Jamaica dollar liquidity and the appreciation in the exchange rate over the last four days."

It said the instrument was also removed as a result of representations made by financial institutions to the BoJ, as well as understandings reached with respect to the development of foreign exchange market protocols.

However, the release said that "notwithstanding the withdrawal of the instrument at this time, the Bank of Jamaica will not hesitate to take whatever action it deems necessary to maintain order in the foreign exchange market."

The BoJ had hiked interest rates against the background of what it said were, "significant Jamaica dollar liquidity and protracted instability in the foreign exchange market."

It had also said the instrument was intended to be a temporary measure, which would be removed "as soon as the corrective fiscal action being developed by the Government takes effect."

Raymond Campbell, president of the Jamaica Bankers Association who could not be reached for comment yesterday had earlier expressed concern over the possible long-term impact of the BoJ's action, saying it would have a disruptive impact on the financial markets.

The Jamaica dollar was being sold for as high as $54.30 when it introduced the latest measure. At the end of trading yesterday, the BoJ's average selling rate fell from last Friday's high of $53.78 to $51.97, a gain of $1.81 or about 3.4 per cent.