BOJ relaxes cash-reserve policy
Published:Friday | July 2, 2010 | 12:00 AM
The Bank of Jamaica (BOJ) has cut by two percentage points the cash reserve requirements for Jamaican-dollar liabilities of deposit-taking institutions, moving it to 12 per cent, with a similar reduction in the liquid assets requirement.
The adjustment brings liquid assets that must be parked with the central bank to 26 per cent.
The policy change will effectively free up the supply of capital that banks can lend.
Foreign-exchange requirement for cash remains at nine per cent, and for liquid assets overall at 23 per cent.
"These adjustments form part of a general easing of monetary policy that is consistent with the improved outlook for inflation and the relatively weak demand conditions in the economy," the BOJ said in a release Thursday.
"The projected path for inflation for this fiscal year continues to trend towards the lower end of the target range of 7.5 per cent to 9.5 per cent."
The new requirements, which took effect July 1, will increase the pool of loanable funds by some $4.5 billion, the central bank said, easing credit conditions.
It is too early, market sources say, to determine whether the additional cash will push lenders to adjust base rates.
Four months ago, the central bank also made adjustments to foreigncash reserves and liquid assets requirements to 23 per cent, back to levels last seen in December 2008.
Stability in the foreign exchange market has been attributed to declining imports and strengthened foreign reserves at the central bank, due to the flow of funds under the International Monetary Fund loan agreement.
The downward trajectory on interest rates has been credited largely to the success of the Jamaica debt exchange programme.