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Publish a trading band for forex rates - Peart

Published:Friday | June 14, 2013 | 6:00 AM
Gary Peart, president of the Jamaica Securities Dealers' Association and CEO of Mayberry Investments Limited. File

President of the Jamaica Securities Dealers' Association (JSDA), Gary Peart, has floated the idea that one of the agencies of Government should publish a band of exchange rates in which the local currency should trade, similar to projections made for other macroeconomic data.

At the very least, it would erase the levels of uncertainty that has currently taken hold of the market, he suggested.

That current uncertainty arises from speculation about the depreciation of the Jamaican dollar and what its true value ought to be against the USD in the aftermath of the National Debt Exchange (NDX).

"After the NDX, people were making all kinds of pronouncements about where the dollar should go, where it is going - and that was causing a lot of confusion," Peart said Wednesday night at a forum hosted by financial regulator, the Financial Services Commission.

"A lot of experts were making projections about the movement of the rate, causing even more confusion in the markets," said Peart, who heads securities firm Mayberry Investments Limited.

Immediately after the debt swap in February several pronouncements were made, both by local analyst and organisations such as the International Monetary fund, alluding to the Jamaican dollar as an overvalued currency.

At the time, one analyst suggested that based on his analysis the exchange rate should really be J$159.96 to US$1, rather than the J$95.50 that was being floated as an equitable rate.

The JSDA president said there should be some order to the speculation, which he said is doable if the authorities announce projections to guide the markets.

"Essentially, I thinking an institution should publish a range at the beginning of the year on what the Jamaican dollar should be at the end of the year, relative to where it was at the start of the year," Peart said.

"Just like how at the start of the year, certain institutions come out and say what they think inflation should be, the same should happen for the foreign exchange rate," he said.

The Bank of Jamaica issues forecasts for inflation and the net international reserves. The central bank also manages and regulates the foreign-exchange market.

Peart said that while his prime objective for making the suggestion was for the maintenance of order in the forex market, he acknowledged that there might be reluctance by some of the agencies because of the possibility that the strategy could create the opposite effect - that is, more confusion - saying that speculators would still look for ways to gain from movement in the rates.

He used the example of an agency projecting that the rate is to range between J$100 and J$105 for a particular year.

"If you put this range out there, there are persons who will hold out because they say the rate is going to J$105. In the meantime what do we do then?" he asked.

And as to the assertion from the central bank and the IMF that the dollar is more competitive at its current level around J$100 to the USD, Peart said not everyone is as certain, including businesses.

"This is creating panic in everybody's business," aid the JSDA president.

"Merchants don't know how to price goods; people don't know how to allocate their investment. The merchants don't want to price their goods too high and run away business, or too low and start making losses. So since people are not sure about what to do, they just don't do anything," he said.

Since the start of the year the Jamaican dollar has lost eight per cent of its value. The slide was halted temporarily by the IMF agreement, but the JMD has since hit new lows of J$100.47 on Wednesday.

"A sliding dollar is not really a bad thing; it is just that we don't know how to manage the slide now. That is what is causing concerns for a lot of people," Peart said.

The market is already speculating that the JMD will slide to J$140, he said.