A SUCCESSFUL intervention into the market last week has resulted in the dollar
closing below $60.00. The dollar on Thursday closed at $59.97 a slight recovery
from the $60.10 closing on Wednesday. The revaluation on Thursday while much
smaller than on previous days was still a continuation of the revaluation process
started on Monday and represented 4 straight days of gains for the dollar. This
new direction for the dollar came as a result of the intervention into the market
by the Central Bank selling currency into the market, a personal appeal to the
market by the Prime Minister and the launch of a 12 per cent US indexed bond
which opened to the market on Thursday.
Last week's growth in the dollar is the strongest this year following the
dollar's worst decline in the history of Jamaica's currency market. The market
plunged 16.60 per cent in the month of May. The confidence factor was clearly
the largest contributor to both the steep devaluation and the recovery. It all
started with the actions of the Prime Minister on the weekend following May
16. When the leader of any country thinks it necessary to address the nation
on any issue, you know it is not business as usual. There was also some good
news happening in the market at the same time. The Planning Institute of Jamaica
(PIOJ) came out with their projections for real growth in GDP of 3.5 per cent
for the current quarter to end in June. This comes on the heels of the 3 per
cent growth for the first quarter of this year. What was significant in the
projections was that growth is expected form all sectors with the exception
of Manufacturing. Additionally the Private Sector Organisation of Jamaica also
came out with projections for another year of modest growth of about 2 per cent
which is just about even with the growth of 1.8 per cent for last year. This
growth is expected in spite of the slow down in the telecommunications sector,
the dampening effects of the new tax measures from this year's budget and the
volatility in the foreign exchange market.
The country also received assurances from the Finance Minister that the World
Bank and the IDB were committed to assisting Jamaica with its fiscal challenges.
The boost in market confidence triggered the selling of currency by traders.
This along with the sale of currency into the market by the Central Bank was
enough to break the dollar out of the vicious downward cycle, a cycle created
by what the authorities referred to as an artificial shortage of currency and
above normal high demand. Some analysts in commenting on last week's recovery
say the government should keep the positive momentum going by lowering interest
rates.
In the week from May 16 to 22, the dollar at $59.97 has appreciated 10.78 per
cent. It has cut losses for the month of May from 16.60 per cent to 4.02 per
cent and losses for the year from 31.88 per cent to just over 15 per cent. Regardless
of the reasons and the actions which follow, as Jamaicans celebrated Labour
Day, there will be a visible sigh of relief that the country has recovered from
the worse devaluation in recent history and that the crisis may be over. The
Jamaican dollar closed yesterday at $59.83 against its U.S. counterpart. It
fared better against the Pound closing at $97.21 and $44.06 against the Canadian
dollar.
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