Wynter: BOJ committed to flexible forex regime
Brian Wynter, governor of the Bank of Jamaica, reaffirmed his commitment to a flexible currency-trading regime for Jamaica, while telling exporters Tuesday that the depreciating dollar was providing opportunities that local business should quickly move...
The central bank has been less aggressive in market interventions, opting instead to offer rival investment instruments to take pressure off the exchange rate.
The bank's stance appears to align with the programme of economic reform worked out with the IMF.
Both Wynter and the Fund have said the JMD is more competitive at its current levels.
Speaking at the Jamaica Exporters' Association banquet in Kingston, Wynter said the BOJ is "committed to a flexible exchange rate regime consistent with enhancing the competitiveness of the Jamaican economy".
The policy is part of the broader, ongoing macroeconomic strategy required by the IMF for stabilising the economy, he said.
The Jamaican dollar depreciated by more than 6.5 per cent in the first quarter of this year, closing at J$98.73 to US$1 during the month of May.
Last Friday, June 7, the dollar officially reached the J$100 mark against the US and has continued to slide daily since then.
While there are expectations of a negative fallout from the slide, including higher costs for imports such as energy and raw materials, and higher financing costs on the external debt stock, the central bank governor says the depreciation is likely to improve competitiveness for local producers.
"First, a flexible and competitive exchange rate will enhance the ability of Jamaican businesses to compete in both the export markets and the domestic market. A flexible exchange rate is an exchange rate that responds to market forces. A competitive exchange rate is an exchange rate that adjusts so as to at least account for the difference between Jamaica's inflation and that of our trading partners," he said.
Wynter admitted to awareness of the worry attending the slipping value of the local currency, but indicated that the central bank did not share the concerns.
"Let me reassure you that the depreciation thus far has been in keeping with our expectations and the policy objective of ensuring that goods and services produced locally can be sold at competitive prices in the global market. This is absolutely essential for export-led growth," he said.
Wynter noted that the recent movement in the exchange rate also comes against the background where the central bank has been steadily and deliberately rebuilding the net international reserves.
The NIR dropped as low as US$866 million in April, but is back on the upswing post-IMF agreement. It reached US$989m at the end of May.
Wynter said the BOJ has already "halted the decline in reserves which, with reason, was a source of considerable concern in all corners of our society during the last two years. We have now made good headway in the rebuilding of the reserves, which bring comfort and confidence not only to our domestic stakeholders but also to international investors who continue to have strong interest in Jamaica and its many investment opportunities," he said.
The central bank, he added, has already received reports of companies that have been benefiting from the adjustment in the exchange rate and others who are repositioning to capitalise on the opportunities that are being created by a more competitive Jamaican dollar.
"These include a company successfully competing for orders in a market it was unable previously to get into, and a medical practice making capital improvements in order to provide first-rate services locally more conveniently, and at more competitive rates than is available overseas," the governor said.
"I want to encourage everyone to look carefully at the opportunities that the new environment is providing."
The falling dollar is potentially inflationary, a situation the BOJ is policing.
"We remain watchful over the potential short-term negative impact of exchange-rate movements on the standard of living. The monetary and fiscal policy mix will therefore seek to restrain the pass-through to inflation. However, the only way to sustainably mitigate the impact of depreciation on our standard of living is through meaningful gains in productivity and stronger economic growth."
Wynter said the successful implementation of the four-year IMF programme will have a positive impact on businesses as the sustained reduction in public debt and the fiscal deficit will lead to a 'crowding in' of resources for the productive sector or an expansion in available financing to businesses and on better terms.
"An environment favourable to exports should contribute to an increase in investment, economic growth and job creation, particularly within the export sector. Moreover, the ongoing fiscal consolidation has contributed to a compression in domestic demand, which, therefore, means that businesses will have to redirect their focus more towards external markets," the governor said.
The IMF programme aims to bring Jamaica's debt load to more sustainable levels, from 147 per cent of GDP now to around 96 per cent by 2020.