By Andrew Green, Staff ReporterTHE JAMAICAN dollar fell yesterday to a value of $50.03 to the US dollar with market players saying the new low was of no major significance.
Yesterday was the first time that the weighted average selling rate of the local currency in trading against the US dollar had fallen through the $50 barrier. In Monday trading the weighted average rate against the US dollar had been $49.95.
The cause of the decline is simple, said Chebiche Chebiche Campbell, assistant manager of foreign exchange trading at Pan Caribbean Merchant Bank. She said "there is a lot of (Jamaican dollar) liquidity in the market and a limited flow of foreign exchange from tourism."
Starting the year at a selling rate of $47.49 to the US dollar, the local currency had slipped to a value of $49.78 to the US dollar last Monday.
The Jamaican dollar has been edging downward in value against the US currency since late October, after a massive state intervention early in October had caused the currency to strengthen.
On Thursday and Friday the Bank of Jamaica had pumped foreign exchange in the market to satisfy the demand, Miss Campbell said. "It is not a matter of capital flight," said Earle Harriott, president of the Cambio Dealers Association of Jamaica, when asked last Friday what was causing the pressure on the foreign exchange market. He said, "It is just that the inflow of foreign currency is inadequate to meet local needs."
Another issue is the decline in local interest rates.
To stave of the decline in the currency during October, government had hiked six-month treasury bill rates to 19.54 per cent from 16.69 per cent in the September six-month treasury bills.
High domestic interest rates keep funds attracted to Jamaican dollar investments and so protects the value of the local currency, Mr. Harriott said. But the economy will stagnate if treasury bills rates are kept at a high level.
The six-month treasury bill issued in January had a rate of 17.08 per cent, according to BOJ data. The rate gradually fell to a low of 13.78 per cent in August, before instability in the foreign exchange market caused it to shoot up. For the economy to grow, interest rates must fall, Mr. Harriott said. But this may cause "hiccups" in the foreign exchange market.
After peaking at 19.54 per cent in October, the six-month treasury bill issued last Friday was allowed to decline to a rate of 16.89 per cent.
When the interest rate falls, "the dollar comes under pressure, even when the dollar is in high supply," Mr. Harriott said. The fall in the value of the local currency is likely to have little short term impact, said Charles Lym, managing director of Hand Arnold, a major food distributor. He said, "merchants have already factored a depreciation into their pricing of goods for the Christmas."
Only those who owe money in foreign exchange, such as the government, will be negatively affected by the fall, Mr. Lym said.
