Jamaican dollar hits new low

[Lazie]

Jamaican dollar hits new low

The selling rate for the American currency has hit a new high of JA$81.

It was another day of decline for the local currency on Monday with still no end in sight to the daily depreciation.

According to the Bank of Jamaica's trading sheet $81 was the highest rate reported by authorised dealers.

$79.98 was the average rate.

US$43.9 million was purchased by the market while US$54.3 million was sold.

In the meantime, it is costing an average $64.52 for the Canadian and $121.34 for the pound sterling.

http://www.radiojamaica.com/content/view/14176/52/

[Hortical]

So the labourite change of course = massive dollar devaluations.

[Willi]

This guy knows his stuff....


FX market underpinnings sound
...Says JN Fund Manager's Head
Sunday, December 14, 2008


The dramatic fall in the Jamaican dollar against the US dollar over the last few months has brought fear among the business community that the dollar will continue to fall precipitously.
JN Fund manager general manager Keith Senior
But at least one analyst, JN Fund Managers general manager Keith Senior, believes the fears are misplaced.
Between September and October the local currency lost approximately five per cent of its value relative to the US currency. Senior was of the view that this rapid slide was not justified once a careful analysis of the country's foreign exchange position is undertaken.
He stressed that the country's balance of trade and balance of payments are projected to improve over the next couple of months given the sharp fall in price of commodities such as oil, grain and construction materials globally. He further pointed out that over the next five years Jamaica's principal foreign currency debt payments is under US$950 million, including February 2009's Euro 200 million bond.
"The repayment level augurs well for the immediate future and is manageable," he said.
The country's foreign exchange reserves, at just under US$1.8 billion at the end of November, are higher today than they were in 2003, when there was a similar period of instability. These reserves along with other monetary tools available to the Bank of Jamaica provide the authorities with the capacity to defend the local currency.
"The decline in the cost of imports will be offset to some extent by the fall in earnings from our exports, tourism and remittances," Senior said. Despite the global crisis, the tourism industry continued to record growth this year according to Tourist Board data, suggesting that the impact of the global downturn may be blunted by the displacement effect as American travellers elect to visit lower cost destinations. Improved air and promotional links with Canada and Europe along with a favourable exchange rate environment could materialise in the industry weathering the global turmoil reasonably well.
Against this background, Senior said "some of the pressure we have seen on the exchange rate should decline."
These factors appear to have been overlooked in the recent push to purchase foreign currency, he added. The global economic crisis was triggered by the problems in the sub-prime mortgage market in the United States in 2007. The crisis escalated in the collapse of Lehman Brothers, a large US financial institution, and a seizure in the credit markets.
Bank of Jamaica Governor, Derick Latibeaudiere, said in November that the escalation in the crisis led to severe tightening in global liquidity and firms have been finding it increasingly difficult to meet their obligations. Margin calls on bonds held by some financial institutions forced them to take Jamaican dollars to buy foreign currency.
The central bank, in an attempt to insulate the free fall in the value of Jamaica's foreign currency global bonds made available a US$300 million line of credit to financial institutions whose overseas credit lines were either cancelled or faced with margin calls.
"In the global panic, some holders of Jamaican dollars seeing their currency fall in value, also elected to acquire hard currency," Senior said. The currency lost about two per cent in value against the US dollar in November.
"Recognising the implication of the continuing depreciation in the value of the local currency, the central bank was forced to implement additional measures," asserted Senior. Accordingly, the BOJ raised their 30-day to one-year repo interest rates.
In periods of currency instability, central banks and governments quite often opt to reduce the level of liquidity in their financial the system to eliminate disequilibrium, noted Senior. "While a lot of attention has been focused on the recent upward adjustment in interest rates, the shift was inevitable."
"The continued freefall in the value of the currency had serious implications for inflation, and the attendant higher cost in utility bills, petroleum products, wages, consumer durables and investments," he added. "In short, an unabated devaluation of the currency affects those most vulnerable in
the society."