By Andrew Green, Staff ReporterTHE JAMAICAN dollar strengthened for the second consecutive day yesterday, gaining $3.78 against the US dollar in trading, as Government's measures to build confidence in the market continued to bear fruit.
The average selling rate was $61.69 to the US dollar, preceded by a gain of $1.75 on Monday. The appreciation in the currency is based on the market intervention measures announced by Prime Minister P.J. Patterson in a nationwide address on Sunday night.
The average selling rate was $103.62 to the British pound, a gain of $2.67. Against the Canadian currency, there was a gain of 71 cents, with an average selling rate of $48.12. These gains followed a slide of $9.92 against the US dollar for the month up to Friday last week.
"The market psychology has changed," said Cambio Dealers Association executive member, Earle Harriott. He said that when people see the dollar appreciating, that itself serves to reinforce confidence that more appreciation can take place.
"The Bank of Jamaica (BoJ) intervened at $63.95 to the US dollar, for the brokers to sell at $64," said Chebiche Campbell, manager for foreign exchange trading at Pan Caribbean. She said "more purchasers entered the market compared to Monday as the BoJ intervened in the market again."
Prime Minister Patterson announced on Sunday that the BoJ would use the country's Net International Reserves (NIR) to supply foreign exchange to the market. He also said the Ministry of Finance would issue an 'indexed bond' to build confidence in the Jamaican currency.
"Nearly everybody rejected the BoJ intervention funds," said Mr. Harriott. He said "it wasn't so much the BoJ input which caused the rise of the currency, but people selling off US dollar holdings."
Mr. Harriott said the Prime Minister's personal intervention had served to increase the impact of the measures announced. "If there are speculators," he said, "they will wait until they see the maximum appreciation before they start buying again."
Some purchasers were still been waiting on the introduction of the indexed bond in the market, Miss Campbell said. "I think we should see some more activity between Wednesday and
Gains ground against foreign counterparts
Thursday now that details of the indexed bond are out, with end users buying more foreign exchange."
The bond is priced attractively for investors, Mr. Harriott said, "so I guess a lot of people will probably be holding their Jamaican dollars to invest in the bond."
Miss Campbell said another factor in the market was the increase in overdraft rates to 65 per cent from 45 per cent on Monday. She said "persons won't want to run their accounts in overdraft and the market was somewhat tight on Monday."
Increasing the overdraft rate will tend to reduce the amount of local currency circulating as companies seek to cut their interest costs, thus reducing the speculative demand for foreign currency.
But these measures are short term ones that cannot be sustained, Mr. Harriott said. Speculators are probably waiting until there has been a full appreciation of the currency, "then you could see them purchasing more US currency."
