Thursday 24 September, 2020

Golding criticises BOJ over forex market volatility

Shadow minister for Finance, Mark Golding.

Shadow minister for Finance, Mark Golding.

Despite assurances from the Bank of Jamaica (BOJ), People’s National Party (PNP) shadow minister for Finance, Mark Golding continues to criticise the central bank over what he describes as the country’s “chronically volatile exchange rate”.

Golding and the PNP are also contending that the country’s foreign exchange market continues to be severely impacted by an acute shortage of supply of foreign exchange to serve the real economy.

And the opposition has also expressed concerns about a lack of transparency in the forex operations of authorised dealers.

Golding, in a statement on Friday, noted that the official selling rate for the US dollar moved from J$142.23 on November 12, 2019, to J$131.53 on December 19, 2019. This is a movement of over J$10.00 and since then it has fallen to J$137.29 on January 15, 2020.

Golding argued that these wild swings are a repeating cycle that is plaguing Jamaican businesses, undermining their ability to forward plan.

He said businesses are reluctant to take the risk of pricing their products unless they do so at the upper end of the established exchange rate cycle.

He said the situation is further compounded by the fact that businesses in the real sector are unable to buy foreign exchange to pay their bills, thus jeopardising their credit arrangements with suppliers. This, he said is despite the market’s reported daily purchases and sales of foreign exchange commonly ranging from US$30 - US$40 million.

Additionally, the opposition said it is concerned about the impact these fluctuations are having on the purchasing power of minimum wage earners and other low-income consumers and the dampening effect on investment and economic growth.

“Despite a year-on-year increase in net international reserves, the foreign exchange market has become dysfunctional. The lack of transparency in the allocation of foreign exchange by the authorised dealers has created the resentment that portfolio deals, with attendant fees and profits for authorised dealers, are being prioritised over the needs of the real economy,” Golding stated.

He added that “The promised trading platform to address this is still not available and, despite the official talk, there is no adequate forward market to assist the real sector”.

The shadow finance minister said the government and the central bank need to lead a process of constructive dialogue with authorised dealers and real sector end-users to develop workable solutions to these problems, to ensure that the foreign exchange market serves the needs of the real economy.

The BOJ was also criticised this week by the influential Jamaica Manufacturers and Exporters Association (JMEA) which argued that the present state of affairs was “seriously impacting the productive sector as companies are unable to meet obligations to suppliers and to do normal business”.

“Furthermore, this high level of volatility and unavailability (of foreign exchange) makes it impossible to run any business properly,” the JMEA said.

Responding, the BOJ said there was no shortage of US dollars in the foreign exchange market despite the recent slip in the value of the Jamaican dollar.

It pointed to an increase in demand which it said was related, in part, to restocking activities by retailers.

The bank sought to assure that these transactions are temporary in nature and said it expects the foreign exchange market to revert to more normal patterns in the near future.

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