Tourism squeeze sinks dollar to new low at J$150 to US$1
The Jamaica dollar hit a new milestone on Wednesday at $150.02 to the US dollar, its lowest value ever.
The higher the exchange rate, the lower the value of the local currency and the higher the cost of doing business for Jamaican companies that buy inputs from overseas or foreign goods for local distribution.
For Jamaican consumers, each time the currency depreciates, it means that they are likely to face higher prices for groceries and other retail goods and some services.
Bank of Jamaica (BOJ) deputy governor for research, economic programming and financial stability, Dr Wayne Robinson, said the depreciation in the exchange rate since the beginning of July was due to lower inflows of foreign currency from earners, coupled with the reduced capacity of authorised dealers to supply customers from their own positions.
He said that that was notwithstanding higher-than-anticipated inflows from remittances.
“As you are aware, Jamaica’s major foreign-exchange earner, the tourism sector, was – and continues to be – severely impacted by the COVID-19 pandemic,” said Robinson in response to Gleaner queries.
“Also, some dealers had significantly sold down their foreign currency positions prior to July, and in a context where inflows are generally lower, they were not able to sustain this activity in July and August,” he added.
The BOJ deputy governor said that at the same time, demand for foreign currency remains substantial. Such demand has come from individuals and various sectors – such as telecommunications, distribution, manufacturing, construction, and energy – to meet current and future operational needs.
He said that there was also some element of portfolio demand as individuals and entities seek to protect themselves against further depreciation.
As to what action the BOJ has taken to curb the depreciation, Robinson said: “As we have been communicating, given the Government’s policy of a market-determined exchange rate, Bank of Jamaica does not seek to defend any particular level of the exchange rate.”
He added: “Instead, we endeavour to ensure that the market functions efficiently, smoothly, and in an orderly manner in allocating foreign exchange.”
Robinson said that the developments in the foreign exchange market since August have been orderly and that the BOJ would intervene if that changed.
He noted that the central bank sold US$70 million to the market via the Bank’s Foreign Exchange Intervention and Trading Tool (B-FXITT) in July, and it continues to provide foreign currency to Petrojam, the island’s oil refinery, thereby taking out a large block of recurrent foreign-exchange demand from the system.
Robinson said that with a flexible exchange rate, the price of the US dollar will move based on the balance of supply and demand.
In that context, he noted that even since the onset of COVID-19 in Jamaica in March this year, the exchange rate has been moving in both directions, reflecting the ebbs and flows in the market.
“As with all other tourism-dependent countries, Jamaica continues to experience a significant fallout in foreign-currency flows into the economy, notwithstanding the reopening of the travel sector,” he said.
Remittance inflows for the January to April 2020 period declined by 1.2 per cent when compared to the similar period in 2019.
However, Robinson said that preliminary information shows a strong recovery in remittance inflows subsequently, with growth likely to exceed 20 per cent in May, June, and July.