Clarke wades into forex spat - Warns market to view 'pressure' on central bank with suspicion
In an apparent swipe at the head of Jamaica’s most powerful business lobby, Finance Minister Dr Nigel Clarke yesterday led a spirited defence of the central bank’s foreign exchange management, batting aside criticism of currency volatility and reaffirming that the floating-rate model is here to stay.
Though not naming Howard Mitchell, president of the Private Sector Organisation of Jamaica, the finance minister used uncharacteristically combative language to pour scorn on the businessman’s call for pegging in the face of the roller-coaster movement of the Jamaican dollar against the greenback, the last slide registering an eight per cent decline in less than a month.
Clarke, who was the keynote speaker at the official opening of the Victoria Mutual Financial Centre in Fairview, Montego Bay, on Wednesday night, warned members of the banking sector to ignore detractors who sought to apply undue pressure on the Bank of Jamaica’s (BOJ) oversight of foreign exchange movements.
“When you hear persons trying to extend pressure on to your central bank, that has your reserve, that guarantees your stability, that guarantees your security, that undergirds and underwrites your prosperity, that reinforces and provides the foundation to your economic opportunity, you must look at them with suspicion,” said the finance minister.
Clarke defended the floating exchange rate as the most viable currency mechanism, a view that has the favour of the International Monetary Fund (IMF).
“It is also a floating exchange regime, where the movements on a daily basis are no longer 10 and 15 cents, but they are larger, 50 cents and 80 cents, for example, and it is also an exchange regime that is characterised by much less central bank activity than used to be the case,” said the finance minister.
According to Clarke, in 2015, the BOJ sold, on a net basis, approximately US$650 million into the market, US$865 in 2016, and US$585 million in 2017. Intervention from the central bank in 2018 was approximately US$80 million.
“For the first four months of this year, the central bank sold approximately US$160 million into the market, so you can see the trend, a trend where the central bank’s participation in a market driven by private agents has been reduced significantly over time,” said Clarke.
“It so happens that that has come at the same time that our reserves in the central bank are at the highest level that they have ever been over the last several months on a net basis and on a non-borrowed basis,” added Clarke.
Yesterday, stung by IMF Mission Chief Uma Ramakrishnan’s dismissal of his call to peg the local currency to the US dollar, Mitchell seemed to step back from beating the dollarisation drum and broadened the scope to achieving the ultimate goal: a stable exchange rate by any means.
“There has been much commentary and criticism in the wake of my suggestions to consider alternative systems which do not require the current level of complex management, but we still have not addressed the manifest issues of high price volatility and supply dislocations in the FX market, which negatively affect the efforts of the productive sector to achieve real growth.
“An eight per cent decline in the value of the Jamaican dollar in less than a month wreaks havoc on businesses, particularly small businesses that are the lifeblood of the economy, and their pain should not be dismissed by arrogant one-liners that can stimulate fatigue and regressive responses,” Mitchell said in a sharply worded press statement issued yesterday.
Last week, he described devaluation as “a curse, a self-imposed albatross around the neck”.
“Our small businesses and our poorer citizens have had enough of this brutal and unnecessary, uncertainty,” he said then.
Just last week, the BOJ reported that it sold US$40 million – half to authorised dealers and major cambios – to the foreign exchange market to help cushion the slide in the value of the Jamaican dollar against the greenback.
The interventions were set in train to ease supply woes in the market.
The central bank’s Foreign Exchange Intervention and Trading Tool, better known as B-FXITT, had been touted, since its inception in 2017, as a master stabiliser to cure years of volatility, but importers are still peeved that the Jamaican dollar continues to be a moving target.