BOJ Governor Richard Byles
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Richard Byles
By Halshane Burke
The Bank of Jamaica (BOJ) says the move to increase the cash reserve requirement (CRR) is to reduce the possible pressure on the inflation rate.
The CRR is the amount or money that each institution is required to place at the Central Bank.
BOJ Governor Richard Byles said the one per cent increase is to take effect on April 1, with domestic funds moving to six per cent and foreign currency to 14 per cent.
"We are concerned that what we face in the near future is a wave of liquidity, which arises mostly from seasonal government activity as well as our activity in the foreign exchange market; because remember, when we buy foreign exchange, we are putting Jamaican dollars in the system," he pointed out.
Mr. Byles said the increase in the CRR will head off any possible run on the foreign currency market.
"It's a preemptive move to stop what we see as a potential threat. Too much liquidity in the system will put pressure on the US dollar market and we want to pre-empt that by taking it out," he explained.
Mr. Byles was speaking Tuesday morning at the BOJ's quarterly press briefing.
He said the Central Bank will monitor the effect of the increase to determine the next steps.
The governor warned that the increase in the cash reserve requirement may push up the cost of borrowing.
Mr. Byles said each institution will have to make an assessment to determine if borrowers will have to pay more.
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