FX Market Interventions Cost USD$2.5-billion in 5yrs

Jamaica’s interventions in the foreign exchange market have cost the country USD$2.5-billion or JMD$320-billion over the past five years.

The figure was revealed by the IMF’s Mission Chief to Jamaica, Dr. Uma Ramakrishnan while speaking with journalists via video conference today, after the country’s successful completion of the fourth review under the Standby Agreement with the Fund.

Every time the Jamaican dollar depreciates, there are calls for the government to do something about it. But, that comes at a steep cost; USD$2.5-billion over the past five years, according to the IMF Mission Chief.

The latest interventions came in August, when the Jamaican dollar traded at a record low of JMD$137.96 to USD$1.

The Bank of Jamaica sold USD$100-million over a period of five weeks through its BFXITT mechanism and a one-off flash auction. That prompted an appreciation, bringing the dollar back down to $127.61 today.

Dr. Ramakrishnan says she wasn’t concerned about the exchange rate then and isn’t concerned now.

But even with the exchange rate back at $127, some merchants are still complaining that the wide swings make it difficult for them to plan.

Just last week, businessman Andrew Gray of Gray’s Pepper complained in a letter to a newspaper that, “the floating exchange rate is creating havoc in the trade”. He says “there is too much unpredictability” concluding that he hopes “the floating dollar will not be the new normal going forward.”

Dr. Ramakrishnan says she takes that point, but believes things will improve as the market becomes more mature.

Meanwhile, the IMF Mission Chief is lamenting the slow pace of investment by the private sector. Dr. Ramakrishnan says she expected private investors to be jumping at the opportunities presented by a stable economy.

Dr. Ramakrishnan says the financial sector has to find new business models to generate profit, now that the government is no longer borrowing so heavily from them.

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