No need to panic about foreign exchange movement - BoJ

The Jamaican dollar has depreciated by 1.4 per cent since May, but Bank of Jamaica governor Brian Wynter said the country need not be alarmed by such small movements even as he defended the current policy of maintaining a floating exchange rate regime.



At the same time, Wynter said the bank is committed to stability in the exchange rate and would continue to intervene in the market where necessary, using the resources at its command, to ensure that the market will continue to reflect such stability.



He was speaking at a press conference at the Bank of Jamaica, downtown Kingston, against the background of the Jamaican dollar surpassing the $88 to US$1 mark during the last few weeks.



His comments were also informed by speculation earlier this year from a group within the media that the dollar would lose value in the ensuing months, a prediction made without any scientific evidence, according to Professor Claremont Kirton of the Department of Economics at the University of the West Indies, who suggested there was a sort of irresponsibility in so doing.



Wynter said words were important when it came to foreign exchange markets, “so it’s important that people who speak on the subject do so responsibly and with sufficient care with respect to the implications and consequences of what they may say.”



Noting the 1.4 per cent movement in May, the governor said it has been variously described as a slide, slippage and a problem.



However, “what matters more are actions in the market and the actions of the players – the buyers, the sellers and the central bank,” he said.



He pointed out that gross foreign reserves are currently at US$2.4 billion, and net of the country’s liabilities to the International Monetary Fund (IMF) Net International Reserves are currently at about US$1.6 billion.



“These funds are more than adequate to address the kind of risks that we typically face, and they far exceed the basic benchmark of 12 weeks of goods and services imports,” Wynter said.



“We can afford to intervene extensively in circumstances … where the underlying flows are adequate to meet current transactions and the profile for fiscal accounts reflects a credible and sustainable path that supports macroeconomic stability,” he added.



“In those conditions words matter yes. They can influence and cause people to be disturbed or bothered or react in ways that perhaps are not necessary,” said the governor, adding that “responsibility in what people say I support very strongly.”



However, he emphasized that “words are not the determining factor,” since the bank has the resources to ensure that any temporary shortfall did not create obstacles for people involved in productive investment, or others going about their normal business who need foreign exchange.



Earlier this week, former prime minister Edward Seaga suggested that Jamaica should consider pegging the local currency to the United States dollar, pointing to benefits such as lower inflation, lower interest rates, higher investment, increased economic growth, and greater job opportunities.



But Wynter said the central bank and Jamaica subscribes to the principle of flexibility in the exchange rate.



“The exchange rate is flexible, it does move. And we mustn’t be alarmed when there are small movements in the exchange rate,” he said.



“At the same time, we are committed to stability. We are therefore committed to using our resources, using the means at our command to ensuring that the market will continue to reflect that sort of stability,” added the governor.



“Our flexible exchange rate system that we have had these many, many years has served us well,” Wynter said.



“It represents a mechanism that allows for changes in the relative cost of production of tradable goods to adjust. And it does adjust, it has adjusted in the past and it will adjust in the future. … That is flexibility in the exchange rate and that is the position we hold now and are committed to going forward,” the governor declared.



mcpherse.thompson@gleanerjm.com