Central Bank in response to IMF…No need to auction foreign currency, more than US$25M in system

Jul 03, 2017 News

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The country’s banking regulator believes there is no need at this time for any measures that will involve auctioning foreign currency to help stabilize foreign exchange rates.
The International Monetary Fund (IMF), in a recent report of Guyana’s performance released last week, recommended that officials think strongly on asking banks and other operators to make a bid for foreign currencies being released from time to time by Central Bank, to help the market.
Speaking last Friday with Kaieteur News, Governor of Bank of Guyana, Dr. Gobind Ganga, disclosed that the market is “flushed” with cash at this time.
“According to our information, we have between US$25M to US$30M available in the system.”
He made it clear that auctioning of foreign currency by Central Bank does not make sense at this time.
“Looking at our system…it is not required now…the system is flushed with cash.”
The good news of the stable foreign exchange rates would come after a nervous few months earlier this year, when a number of factors saw the rates rising sharply.
Central Bank had denied that there was a shortage, as commercial banks had not been asking for monies to be released to help the market. However, businesses were complaining at the beginning of the year of delays in remitting monies to suppliers and even with small amounts, account holders were reporting problems.
At non-bank cambios, board rates were reading one thing, but transactions were conducted using different rates inside.
After about a decade of US rates hovering around $205, it has within the last year been inching upwards. Earlier this year, one bank even advertised at $230, later explaining that this was for Visa cards.
Investigations into the situation revealed that there was a combination of things happening.

The nationals of a number of regional territories – Barbados and Trinidad included – were travelling to Guyana and buying up the US dollars. At least one money transfer entity was not remitting the foreign currency to local banks. Rather, the Trinidadian-linked company was selling it to its local subsidiaries.
There were a number of large transfers last year that did not help the situation much.
Still, it appeared that some of the foreign exchange was being bought up and making its way to Suriname, which is also facing problems of shortages.
At the commercial banks, it was found that a number of miners and others with foreign currency accounts were hoarding their money, but making applications for more. There were also instances of duplications (several applications at different banks) by businesses within the system.
Central Bank also found that a number of large companies were making unusual transfers.
In its clampdown, the Bank ordered cambios not to allow a more than $3 spread between the buying and selling rates. There were more surprise inspections to ensure that the cambios complied. On Friday, Dr. Ganga noted that its measures have been working.
According to the IMF in its report last year, its directors had noted the recent increase in exchange rate flexibility, and encouraged the authorities to allow the exchange rate to play a stronger automatic stabilizer role going forward.
“They noted that a clear communication strategy will be important in this regard, and encouraged the authorities to auction foreign exchange when conducting official transactions to help improve price discovery and transparency in the foreign exchange market. Directors agreed that the current accommodative monetary policy stance is appropriate, but stressed the importance of remaining vigilant for possible inflationary pressures and being ready to tighten monetary policy as appropriate.”
The IMF and its directors also noted that the banking sector appears resilient to severe shocks, and welcomed the authorities’ plans to continue bringing the supervisory and regulatory frameworks. However, the IMF was concerned by the country’s stock of non-performing loans, which has risen from last year.
“Directors also called for amending the Financial Institutions Act to operationalize the crisis management framework and establish an emergency liquidity assistance framework.”
Dr. Ganga said Friday that Central Bank has taken note and has been operating in careful manner.
At several non-bank cambios, US was selling for $215 with Mohamed’s on Lombard Street reporting that there is no shortage. The buying rates ranged from $208 to $212 for cash.
Stressing that there is no problem, the governor disclosed that the fact that only US$5M was injected into the market for the year by Central Bank would speak volumes.
Last year, to stabilize the rates, more than US$30M was released by Central Bank to help local banks meet demands after a number of sectors, including rice and sugar, fell short of projections.

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