Ashford W. Meikle, Business Reporter

The Jamaican dollar, which has slid by about half a point against the U.S. dollar just 12 trading days into the start of the new year, will reach $70 by the end of the year, a banking executive has predicted.

At a briefing hosted by NCB Capital Markets, an economist with the NCB Group, Herbert Hall, told investors that the expected depreciation of the dollar by four to five per cent was consistent with the trend over the past seven years, with the exception of 2003.

"The overreaching issue is that, the imbalance on our balance of payment accounts - in the current account where our imports far exceed our exports - suggests that we are using up more foreign exchange than we are earning," Hall later elaborated by email to The Financial Gleaner.

"As such, the Jamaican dollar will continue to adjust to equate the demand and supply of the foreign currency."

Trade deficit

Jamaica has a trade deficit of US$2.7 billion, recorded up to September.

It is expected that inflation will round out to about six per cent for the 2006 calendar year.

The economist explained that the imbalance between the two currencies will remain if the demand for the U.S. dollar continues to outstrip supply.

"Normal foreign currency demand stemming from end users to purchase goods, services and the repatriation of profits to parent companies overseas will continue. Additionally, brokers readjusting and doing their normal portfolio activities will influence the rate at which the foreign currency can be purchased."

Financial analyst Orville Johnson, of Today's Money Limited, says that Hall's assessment is reasonable.

"It has been growing within the three to four per cent range over the past couple years ... so $70 seems like a reasonable position to take given the orderly movement of the currency so far," said Johnson.

Last year the dollar slid four per cent against the US dollar and, since the start of the year, there has been an unusually high demand for the American currency.

Since the start of the year, the Jamaican currency has lost some 31 cents against the greenback.

On Wednesday, the Bank of Jamaica stepped into the foreign exchange market to ease the mounting pressure on the dollar by entering the market, selling US dollars into the market at J$67.39 for further sale to end users at J$67.44.

Analysts blame the current high demand for the US dollar - in a traditionally slow business period - on speculation, particularly by cambio dealers.

"There is no shortage of US dollars in the market," a senior banking executive, who requested anonymity, told the Financial Gleaner yesterday.

"The inflows are there É remittances, record tourist arrivals, Cricket World Cup and coupon payments from GoJ US dollar investments."

Reasoned the banker: "If the central bank is looking to cut interest rates, you won't make any money off Repos ... so what is really happening is that you have some speculators, some of whom are probably brokers, who are speculating against the Jamaican dollar."

With more than US$2.3 billion of reserves, the BoJ has repeatedly demonstrated its resolve to provide stability in the market.

Up to the middle of December last year, the central bank's direct sales to the market totalled US$550 million ($3.7 billion).

"In the past, the BoJ's intervention into the market, with respect to movement of the currency, has been to ensure that the exchange rate is competitive taking into consideration movements in the inflation rate between Jamaica and our major trading partners," noted Johnson.

ashford.meikle@gleanerjm.com