Businesses not overly uneasy about dollar at $130
Published:Tuesday | May 16, 2017 | 12:00 AMMcPherse Thompson
The Jamaican dollar hit another psychological mark at $130 to the United States currency a week ago, but there does not appear to be any heightened concern among businesses, according to the reaction from two private-sector lobbies.
The exchange rate was estimated at $130.30 on Wednesday, having reached the threshold on May 10.
Chief executive officer of the Private Sector Organisation of Jamaica, Dennis Chung, said the Jamaican dollar depreciating to $130 "is a psychologically significant mark". The currency has lost a dollar of value in six months, a period in which the currency sometimes appreciated.
Chung said a one-dollar slide of the currency translates to less than one per cent depreciation and would not have any significant impact on inflation, adding that a five per cent diminishment in value is what is expected annually.
In the past year, the JMD has depreciated by three per cent. For the calendar year to date, it has declined 1.45 per cent.
Chung said he has not heard any real concerns being expressed about the level to which the local currency has depreciated, reiterating that "I think it's really just a psychological thing".
Companies pay attention to the value of the currency because it affects their replacement costs, and impacts the cost of doing business or production costs. Jamaica is heavily dependent on imports, including raw materials.
"The truth is that every time the dollar moves, especially when we import as much as we do as a country, it does affect us," said president of the Jamaica Manufacturers' Association, Metry Seaga.
Notwithstanding that, he was not apprehensive, suggesting that "what we hope to see is stability within a range, allowing slight fluctuations between that range".
Different reasons for slippage
Seaga said they were not sure about what specifically was causing the slide in the value of the dollar. "We see different things happening in the economy and we are not sure what is it that's causing it, but we are hopeful that it stabilises and stay stable," he said.
Bank of Jamaica (BOJ) Senior Deputy Governor John Robinson was not reached for comment.
However, it appears that the BOJ has seen movements that could lead to an unstable market and is intervening by selling ahead of the implementation of its multiple-price foreign exchange auctions addressed in the April 2017 International Monetary Fund country report on Jamaica.
In press releases last week, the central bank disclosed that it has sold US$130 million into the market, via its authorised dealers, this month alone to May 12.
The BOJ's planned move towards a transparent and more market-based exchange rate pricing mechanism, via foreign exchange auctions, is meant to improve price discovery in the foreign exchange market, and facilitate its market-based purchase of international reserves.
Price discovery refers to the general process used in determining spot prices, which are dependent upon market conditions affecting supply and demand.
To further strengthen foreign exchange markets through greater price discovery and transparency, the BOJ is expected to establish multiple-price foreign exchange auctions by next month, June.