Nov 2008 Financial News

'Stop the slide' - Chamber warns Gov't, BOJ as J$ loses value

Nov 11, 2008

Worried about a near five per cent slippage in the value of the Jamaican dollar over the past five weeks, the Jamaica Chamber of Commerce (JCC), the umbrella body of local businesses, yesterday warned the Government and the Central Bank against returning to a policy of devaluation, pointing out that in the past, currency value reductions had pushed up inflation and eroded confidence in the economy and the currency.

"The chamber would strongly oppose any move by the Bank of Jamaica (BOJ) or the Government of Jamaica to return to a policy of devaluation as a monetary tool," JCC president Milton Samuda said in a statement."In fact, the devaluation of the currency over the past 15 years has been one of the major contributors to high inflation and a lack of confidence in the local economy and currency," he added.

Samuda said that last Friday the Jamaican dollar traded at more than J$77.50 to US$1 in the formal market, a slide of over J$3.50, or almost five per cent in the past five weeks. "In fact, on that date, the weighted average selling rate was J$76.7784 to US$1," he said, adding that there appears to be little end user demand for US dollars at this time.Yesterday, the Jamaican dollar traded at J$76.72 to US$1.

Expressing concern at what he described as the "still unchecked" devaluation of the Jamaican dollar, Samuda said that at the outset of the movement of the currency the chamber voiced its anxiety with the Government and the BOJ. "Following these discussions, the Bank of Jamaica issued a statement fully backing the needs of the financial institutions and the establishment of a special facility at the BOJ to take care of their US dollar requirements," said Samuda. "Officers of the Ministry of Finance reassured the chamber that the slide would be short-lived."

He called on the Government and the BOJ to "take all the necessary steps to end what he described as an assault on the Jamaican dollar, saying that "failure to properly manage the rate of exchange and the rate of devaluation leaves the business community in a state of confusion, as there is no way to accurately predict the cost of imported raw materials or finished goods".Yesterday, prominent retailer Michael Ammar Jr supported Samuda's assessment. Ammar Jr, proprietor of the popular clothing store Ammar's, said that his industry will be affected by higher prices, and in the same breath blasted the BOJ's foreign exchange policy."Prices had been very stable in our area and had not been increasing a lot over the year, and all of a sudden, bam!!" he said. "It is absolutely crazy what is going on, and we had warned the Bank of Jamaica, but as usual they disregarded us."Ammar acknowledged that both retailers and consumers will feel the adverse effect of the devaluation this holiday season. He said that retailers will pass on some of the price increases to consumers but will cut margins by up to four per cent."Everybody will feel it, but it has to be known that it is not the retailers who are trying to make a bigger margin and are in fact cutting our margins because we cannot pass on the full extent of the price increase," said Ammar.

The Observer made several attempts to get a comment from the BOJ but was told that managers were attending a meeting. Several unsuccessful attempts were also made to speak to representatives of the Ministry of Finance.Financial analysts say that the sharp devaluation of the Jamaican dollar was triggered by the financial fallout in the US market. When Wall Street collapsed in September, local brokerage houses exposed to the crisis received margin calls - a broker's demand on an investor to deposit additional money or securities so that accounts are brought up to the minimum maintenance margin - after massive declines in share value on the US market.

This increased demand for the US dollar and the problem was exacerbated by the resulting fallout in the tourism and remittance industries that caused a demand/supply anomaly on the foreign exchange market."The devaluation is a result of the liquidity crisis that is being experienced globally and, of course, we now see where demand is starting to outstrip supply, because supply usually comes from remittance and tourism inflows," noted Rose-Marie White-Sewell, manager of foreign currencies at Pan Caribbean Financial Services. "If these slow down significantly, the prices are subjected to go up, and if they are subjected to go up, there will be a reaction to that from users of foreign exchange, which is going to create additional demand on the US dollar."

White-Sewell, is however, confident in intervention methods being employed by the BOJ, and does not anticipate the Jamaican dollar devaluing to more than $78 over the rest of the year."I see the Government putting in measures to try to stem any loss of controls from the perspective of the window that they have extended to brokers and they have also made a commitment to defending the currency through the NIR," she said.



Source:
JULIAN RICHARDSON, Observer staff reporter
Jamaica Observer
Tuesday November 11, 2008
http://www.jamaicaobserver.com/news/html/20081110T2200000500_142414_OBS__STOP_THE_SLIDE_.asp