By McPherse Thompson, Assistant Financial EditorFINANCIAL MARKET analysts believe Government's US dollar indexed bond issue which opened yesterday helped to create some instability in the foreign exchange market over the past few days, but said it was returning to normal.
The Jamaican dollar, which has been trading at $59 to US$1 for some time, reached a high of $59.51 on Monday and appeared to be inching towards the $60 mark. However, at the end of trading yesterday, the Bank of Jamaica reported an average weighted selling rate of $59.48 for the US dollar, a gain of three cents on the previous day's.
STABILISING
Earle Harriott, a member of the Cambio Dealers Association of Jamaica, said judging from yesterday's trading activities, the local currency appeared to be stabilising and he had no doubt it would not depreciate significantly at this time.
The Bank of Jamaica was reported to have intervened in the foreign exchange again yesterday after staying out on Monday.
However, Mr. Harriot explained that the movement in the Jamaican dollar was somewhat anticipated as the 11.75 per cent US dollar indexed bond issue was expected to mop up US dollar liquidity and create a shortage.
In addition, he said, "we are coming up to the time of year when US dollars have always been in short supply" because it is the time when merchants seek to restock in anticipation of the upcoming Christmas season.
"We just have to watch and see what happens," said Mr. Harriott. "But I doubt there will be significant depreciation. It's just that the bond issue has had an impact on the US dollars available in the market."
Mark Walters, vice-president for treasury at Dehring, Bunting and Golding, said that despite the movement in the foreign exchange market over the past few days, he was expecting the Jamaican dollar to remain relatively firm in the $59 band between now and the end of the year.
His projections, he said, were based on the Jamaican dollar liquidity as well as the central bank's ability to easily influence the market. "Any contemplated speculation on the currency cannot be sustained because of the liquidity in the market," he said, noting that substantial inflows of US dollars were expected from a range of securities and other investments in the coming weeks.
In addition, he said, if the current bond was successful, it would have the ability to increase the net international reserves and hence Government's ability to sell in the market. This could also be a signal to investors, who might see it as further evidence that confidence was returning to the market, he said.
