Would the latest IMF recommendation push the Jamaican dollar to 200 to 1 US?

So the IMF was full of praise for Jamaica in its latest country report. The country’s done a good job rebounding from Hurricane Beryl and Tropical Storm Raphael. Inflation is within target. Lots of good stuff, right?

But then they said there’s still room to “deepen our FX market.” According to the IMF, the Bank of Jamaica can do this by “scaling back” on its foreign exchange interventions.

What does this mean and how would it affect us?

Well the BOJ tends to intervene in the forex market whenever the Jamaican dollar starts sliding too much. They do this by releasing or selling more US dollars from the reserves. 

This ensures that banks have more than enough USD to meet the demand, which in turn brings the price of USD down. The BOJ has intervened in the market 17 times since the start of the year.

“Year to date the BOJ has actually sold about US$440 million into the market, which is about 6.7% of total trading volumes.”

“The truth is that the Bank of Jamaica or any Central Bank is actually comfortable with movement in the currency. The issue arises when it becomes a little bit of a wild movement. I think the BOJ would be comfortable once there’s orderly movement in either direction,”

That was Senior Trader at JMMB, Andre Reid, speaking on Taking Stock in June.

And despite the BOJ throwing more USD out there, the JMD still crossed the 160 to 1 US dollar mark in May. So imagine where it would be without those interventions. 170? 180? Dare I say 200 to 1?

Now the IMF did acknowledge that the BOJ’s interventions have helped stabilise inflation and the foreign exchange market. But they said that more heavy intervention could stunt the development of a deeper, more efficient foreign exchange market. 

Remember that discussion we had a few months ago with Marla Dukharan about Trinidad’s foreign exchange issues. She also believes that Trinidad should just let the market move rather than try to control the exchange rate.

But what do you think? Should officials continue to intervene in the market to keep the exchange rate down? Or should they take the IMF’s recommendation and let er fly? Let me know in the comments. 

And that’s the bottom line.