BOJ to corral forex market
The Bank of Jamaica (BOJ) began intervening in the foreign exchange market again on Friday, ostensibly to maintain stability as the Jamaican dollar passed the $125 mark relative to the US dollar last week.
Finance and Public Service Minister Audley Shaw indicated that he has discussed with BOJ Governor Brian Wynter the relatively rapid depreciation of the Jamaican dollar in recent weeks, "and they will be reporting more fulsomely to me in the coming days", he said.
Shaw, addressing a joint press conference with International Monetary Fund (IMF) officials at his Ministry's Heroes Circle office in Kingston on Friday, said that Wynter has indicated "to me that he intends to do some minimal amount of intervention starting today, and it is meant to ensure that the exchange rates doesn't catapult in any disorderly fashion. Some action is being taken today".
The Jamaican dollar traded an at average rate of $125.33 on Thursday. On Friday it fell further to $125.43, reflecting depreciation of over four per cent year to date. At the end of 2015, the local currency traded at $120.4150.
IMF Mission Chief to Jamaica Dr Uma Ramakrishnan did not offer the fund's take on the foreign exchange market when she read, in part, a statement the Washington, DC-based institution later issued in full because the 11th and 12th quarterly review team to Jamaica were pressed for time.
However, the fund appears comfortable with the trajectory of the local currency.
The IMF's staff assessment, according to the statement, was that continued exchange rate flexibility is needed to maintain competitiveness.
"The level of the exchange rate appears broadly in line with fundamentals, but the balance of risks points towards a modest overvaluation," it said.
"To avoid eroding external competitiveness, the currency should be allowed to depreciate to offset the inflation differential with trading partners. A flexible exchange rate implies that any intervention in the foreign exchange market should be predominantly to build reserves and smooth out excessive exchange rate volatility," said the statement.
Shaw said the Government and the IMF team worked together since May 9 to advance the review process and to clarify the path to the end of the present extended fund facility, due to expire at the end of March 2017.
He reiterated that the Government remained fully committed to the objectives under the economic reform programme, inked under the People's National Party administration in May 2013, and overall debt reduction in particular.
Along with efforts to further entrench prudent fiscal policy, the Government will be strident and innovative in this growth push, Shaw said.
He said the IMF staff and Government have also reached agreement on reform of the personal income tax regime and the overall budget.
"Our thanks to the IMF for lending to us their considerable expertise and to help us to smooth the path towards a more equitable system," said Shaw.
"The announced changes to the income tax represents a first step in our efforts to shift the dependence from direct towards indirect taxes, while reducing the marginal and average tax rates for the majority of income taxpayers in this country," he added.
Meantime, Mission Chief Ramakrishnan said all of Jamaica's quantitative performance criteria for end-December 2015 and end-March 2016 were met; and that structural reforms are broadly on track, albeit with some minor delays due to the February elections and government transition.
Consideration of the combined 11th and 12th reviews by the IMF's executive board is tentatively scheduled for June 2016. Their approval would trigger SDR 56.7 million (about US$80 million) of disbursements to Jamaica.