J'can dollar strengthens

By Andrew Green, Staff reporter

THE hike in Bank of Jamaica (BoJ) interest rates on Tuesday has strengthened the Jamaican dollar.

A combination of seasonally high demand with the approaching Christmas season, low supply and speculative attacks put increasing pressure on the dollar after the September 11 attacks in the United States. On Tuesday, Finance and Planning Minister Dr. Omar Davies announced that the Bank of Jamaica (BoJ) had hiked interest rates to shore up the local currency.

"Supply was able to match demand today so we did not have any pressure on the rate," said Wayne Ebanks about market conditions yesterday. The trading and treasury manager of Fx Trader said, "I think we had a mild appreciation in the Jamaican dollar."

From the start of the week, based on the weighted average selling rate, the currency lost 14 cents in trading against the US dollar, before the Tuesday interest rate hike. Since then it regained 14 cents, closing yesterday at $47.55 against the US dollar, based on Bank of Jamaica reports. "The BoJ move to increase interest rates on the 270 and 365-day repurchase agreements has definitely had a revolutionary impact on the dollar," said Julian Mair, managing director of the Montego Bay-based Lets Investments Limited. "We have seen the dollar come off from trading near $48 to trading at around $47.60 in today's trading against the US currency."

Over the course of last week, the Jamaican dollar lost $1.30 in trading against the US dollar, based on the weighted average selling rate. The average rate last Friday was $47.55, the same as yesterday's close.

"This is due to a large extent to the move by the BoJ," Mr. Mair said. "We see tightness in the Jamaican dollar market as a positive indication of the success of the central bank in drying up Jamaican dollar liquidity."

The BoJ increased rates on 270-day instruments from 15.35 per cent to 19.45 per cent, and on the 365-day instruments from 15.90 per cent to 19.90 per cent.

Rates on 180-day instruments were moved from 14.75 per cent to 15.50 per cent and 120-day instruments, were moved from 14.55 per cent to 15.00 per cent. Ninety-day instruments went up from 14.45 per cent to 14.75 per cent and 60-day instruments moved from 14.35 per cent to 14.55 per cent.

"It has had an immediate impact," said Brumalia Cambio director Howard Chin. "It has been significant so far."

Rather than holding US dollar investments at lower rates, investors "seem to be going after the local instruments" at the more lucrative 19-20 per cent interest rate levels, Mr. Ebanks said. "It is just the market forces working."

And by the middle of November the peak demand for foreign exchange will be over, Mr. Chin said. Merchants will have completed their Christmas stocking needs by then.

"You will see the Jamaican dollar improving," Mr. Chin said. "By how much I can't tell. But it should ease."

"People are not holding on the US any more," Mr. Ebanks said. "The interest rate factor changed the whole ball game."

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