Finance Minister Audley Shaw said Thursday that the Jamaican dollar would stabilise in coming days, saying brokers' need for cash to satisfy margin calls on overseas accounts was abating.

On the day that Shaw made the statement, the Bank of Jamaica (BOJ) sold US currency in the market at $76.80 for its primary dealers to onsell at a stipulated price of $76.85.

On Friday, the day after the announcement, the BOJ again intervened in the market at the same price as Thursday, suggesting that the JMD, at least up to the weekend, was still feeling pressure from high demand for the USD.

The intervention contained the fall to two cents - from $76.96 on Thursday to $76.98 on Friday.

"I encourage persons to support the stability in the foreign-exchange market. It does not help for anyone to do anything to disturb the normal inflows and outflows of the foreign- exchange market," said Shaw, emphasising that there was no shortage of dollars.

Demand

"There are those who have and are holding on to it and there are those who don't have," he said speaking at the U-Drive Association meeting at the Terra Nova Hotel in Kingston.

Some of the demand this week would have come from investors converting to USD in order to subscribe to the 11.5 per cent US dollar indexed bond that was floated on the market during the period November 12-14, anlaysts said.

Shaw, on Thursday, speaking at the annual general meeting of the U-Drive Association, also sought to assure the group of car-rental operators that the financial and banking system was safe.

The finance minister said that since the clampdown on credit in overseas markets, the BOJ has issued US$168 million to securities dealers as liquidity support to meet their obligations abroad.

The BOJ had announced that it had put aside as much as US$300 million to assist brokers.

The central bank has been leaning heavily on the net international reserves (NIR), drawing down a net US$415 million to pump cash into the system.

The NIR was down to US$1.8 billion at the end of October.

Additionally, Shaw said that if the need arises, Jamaica now has call on a US$300 million credit line from the Inter-American Development Bank (IDB).

Industry stable, secure

This money, he said, was earmarked for the banks to be issued as loans, in the event that credit begins to dry up in Jamaica.

"I want to remind you that the local banking industry remains absolutely stable and secure," said Shaw.

Pointing to the system's overhaul following the 1990s that included the introduction of more stringent regulatory standards, Shaw said the bad debts within the banking sector was at 2.8 per cent, well within the internationally accepted standard which goes up to 10 per cent.

The Jamaican dollar lost five per cent of its value in October alone, more than it usually does in a year.

On Friday, the market closed at $76.98, but traded within a band of $77.50 and $75.70.

Shaw says the foreign-exchange market is stabilising.

"In terms of the foreign- exchange market, there is relative calm over the past week," he said. "Barring movement of a few cents, the dollar is stabilised."

Shaw said the foreign-exchange rate has been affected by the normal low inflows during the September to November period, Christmas demand and margins calls on financial institutions to maintain the value of their holdings with investment banks abroad.

"There were problems with some securities dealers in terms of leverage with banks abroad. But as of this week, margin calls have come down to virtually zero," said Shaw.

Bond prices

Asked if margin calls have abated, Anya Schnoor, president of the Jamaica Securities Dealers' Association, said that given the indication of stability in bond prices, that could be the case.

"I don't know for the industry, but I do know that bond prices have stabilised and once bond prices have stabilised, there would be no need for margin calls," said Schnoor.

"The margin calls are due to a fall in bond prices, so dealers have to make up the difference in value. But with bond prices now stabilised, then to that fact, you could say margin calls have abated," she added.

Shaw on Thursday also noted the depletion of the NIR, but said its current level was the same position as at December last year, and was not an overriding concern.

But the Bank of Jamaica over the last couple of weeks has had to intervene in the foreign-exchange market providing liquidity support, thus having to dip into the NIR.

sabrina.gordon@gleanerjm.com