KINGSTON, JAMAICA, JUNE 15, 2016- Despite intervention from the BOJ and assurance from Finance Minister Audley Shaw that steps would be taken to stabilise the Jamaican dollar, it continues to lose value against the US currency reaching a historic low of J$126.05 yesterday.
At the end of trading on Monday, the weighted average selling rate for the US currency reached an unprecedented high of J$126.05. The highest purchase rate was J$126.30 while the highest sale rate was J$132.73.
According to financial analyst Ralston Hyman, speaking on News Talk Radio evening programme hosted by Senator Lambert Brown, the slide in the value of the Jamaican dollar is as a result of a lack of conficence in the Jamaican economy. He said while all the economic indicators were positive, the major players in the economy were being cautious.
In looking at the slide of the Jamaican dollar since the elections, he said "at today's rate it now means that the dollar is now down by 3.6% since February 25, meaning an additional J$36 billion in debt service charges."
He says the dollar is now down by 4.29% since the start of this year, which means J$42.9 billion in additional debt service charges, and May 2016 compared to May 2015 it is down by 7.5%, thats J$70.5 billion in debt service charges. Hyman says if you compared May 2015 to June 2014, the dollar is down by 8.67% that is J$80.7 billion in debt service charges."
Hyman said while he had in the past supported the movement of the dollar, the current movement of the dollar was excessive and erratic, as the Governor of the Bank of Jamaica had pointed out. He said the key determinant of the exchange rate was the difference hetween our inflation rate and that of our major trading partner.
Hyman explained that up to April this year, the United States inflation rate was 1.7%, while Jamaica's inflation rate was minus 1.7%. Hence, the Jamaican dollar should be appreciating against the US dollar.
The Finance Minister recently stated that he had asked the Central Bank to intervene in the market when the dollar was at J$125.42 and now we are at J$126.05 hence it can be deduced that the intervention of the central bank has not been successful.
He said the macroeconomic fundamentals of the economy did not support a runaway or excessive movement in the dollar at this time.
Hyman cautioned however, that it was the result of a lack of confidence in the economy. He said this lack of confidence was being fueled by the expectation of a massive tax package in the next financial year, in order to honour its $1.5M election promise.
"They also know that the current tax package in inflationary because according to statin, the average consumer spends 12.80 out of every dollar on transport, and another 12.80 out of every dollar on housing, electricity, gas and other fuels, and 37.40 out of every hundred dollars on food. Therefore once you put a tax on fuel and transport, it is going to spill right over to all prices," Hyman declared.
The Financial Analyst reiterated that the despite assurances from Finance Minister Audley Shaw that 1.5 million tax relief would not cost the country anything, in fact, it will cost tax payers J$32 billion spread over two years. Alresdy we have been taxed J$13.8 billion in new taxes with another eighteen plus billion to come next year. This will be exacerbated next year when the NHT subsidy runs out and the gap is widened.
He said people were now protecting their money and brokerage houses were now diversifying their assets by purchasing US currency, hence there will be an new found of inflation.
In the meantime, Opposition Spokesman on Finance Dr. Peter Phillips is supporting Hyman's theory that the continued slide in the currency is a sign of a lack of confidence in the economy.
- Jamaica to Lobby US Gov’t on Medicinal Cannabis
- JAMAICA | Import Export Trade Portal launched - Game Changer Says Shaw
- JAMAICA | Gov’t Lobbying Support for Cannabis Industry Development
- JAMAICA | Shaw promotes Jamaica's Agricultural potential in London
- JAMAICA | Agriculturists to Benefit from Programmes in Israel