“A major reason why we depreciated the exchange rate was to correct this very current account deficit,” he said.
“And to the extent that we are having success with it and it is improving rather quickly, then I think it gives support to the argument that we should be slowing the rate of devaluation of the Jamaican dollar,” he told a news conference at Sagicor Life Jamaica, New Kingston, on Monday.
Current account deficit
Byles said the current account deficit – the difference between exports and imports of goods and services as well as net income and transfer flows – was 8.8 per cent of GDP for fiscal year 2013-14.
That compares with 11.5 per cent for fiscal year 2012-13 and 14.8 per cent in 2011-12.
“One of the reasons for the foreign exchange rate depreciation is to stay competitive with the US dollar. So if they are experiencing inflation that is much lower than ours, then we have to devalue to keep the competitiveness,” Byles explained.
Noting that inflation in Jamaica was trending down “and coming closer and closer to say US inflation,” he said reason to continue the depreciation in the value of the Jamaican dollar has subsided.
According to the latest communiqué issued by the non-public-sector members of EPOC, the foreign exchange depreciation, supported by the Government’s tight fiscal operations, was attributed to the improvement in the current account deficit.
Referencing the US$800 million the Jamaican Government raised in the international bond market recently, Byles said “that augurs well for the exchange rate to the extent that the Bank of Jamaica may have been in the market in past months buying foreign exchange to build the NIR (Net International Reserves). As it stands now they don’t have to do that anymore in the near future”.
He believed that several pieces of good economic news, including the improvement in the current account deficit, “led the governor of the Bank of Jamaica (Brian Wynter) to state quite emphatically that he thought the rate of devaluation was too fast and that it needed to slow”. Last week, the central bank intervened by selling foreign exchange to the market.
“So, for our Jamaican consumers the slowing of that exchange rate depreciation is welcome news,” Byles said.
Yesterday, the average selling rate of the Jamaican dollar was $112.57, down from $112.74 to US$1, the point at which BOJ intervened.