Kato: Important for FX to reflect fundamentals, move stably

Kato: Important for FX to reflect fundamentals, move stably

The Bank of Jamaica (BOJ) has recently reassured the public that it has sufficient foreign currency reserves to maintain stability in the foreign exchange market. In a press conference held on August 21, BOJ Governor Richard Byles stated that as of August 12, 2025, Jamaica’s gross international reserves stood at a historically high and healthy level of US$6.2 billion, or 148% of the measure considered adequate [1].

Byles noted that the foreign exchange market experienced slightly higher-than-usual volatility in recent months, primarily due to temporary factors such as global economic uncertainties and the psychological impact of the exchange rate crossing the $160 to $1 threshold. However, he emphasized that the BOJ's commitment to a flexible exchange rate regime remains unchanged. This policy aims to align the exchange rate with the long-term trend of inflation in Jamaica compared to its main trading partners [1].

The BOJ's Monetary Policy Committee (MPC) has been monitoring the foreign exchange market closely. During its most recent meeting, the MPC considered the market's volatility and the increase in net open positions, reflecting the public's heightened view of exchange rate risk. The bank has sold US$1.2 billion via its Bank of Jamaica Foreign Exchange Intervention Trading Tool (B-FXITT) facility over the past 12 months, while also net purchasing approximately US$931 million over the same period [1].

Byles highlighted that the current account of Jamaica’s balance of payments remains in surplus, driven by robust remittance inflows and tourism arrivals. This surplus, along with the BOJ’s intervention, has helped stabilize the foreign exchange market and reduce the pace of depreciation since the end of June [1].

In a separate development, Turkey's phased exit from its FX-protected KKM deposit scheme signals a shift towards conventional monetary policy. The scheme, which protected lira deposits from currency depreciation, was reduced by 92% to $11.8 billion by 2025. This move reflects a broader policy reversal under President Recep Tayyip Erdoğan, who has adopted higher interest rates to curb inflation [2].

The Central Bank of the Republic of Turkey (CBRT) has implemented measures such as limiting KKM returns and halting new corporate accounts, contributing to the scheme's obsolescence. These steps, combined with a broader pivot to tighter monetary policy, have accelerated the scheme's decline and improved investor confidence [2].

The BOJ and CBRT's actions underscore the importance of reflecting fundamentals in foreign exchange markets. By maintaining sufficient reserves and adopting stable monetary policies, these central banks aim to ensure that exchange rates move in line with economic realities. This approach is crucial for maintaining investor confidence and supporting sustainable economic growth.

References:
[1] https://jamaica-gleaner.com/article/news/20250822/boj-has-enough-reserves-maintain-stability-foreign-exchange-market-byles
[2] https://www.ainvest.com/news/turkey-kkm-exit-road-monetary-normalization-implications-currency-stability-capital-flows-2508-6/