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If the Government is successful in accessing more multilateral financing for the country’s current account, possibly through the International Monetary Fund (IMF), this will boost stability and investor confidence.
This view was expressed today (July 15), by Manager of Treasury at Scotia DBG Investments, Keisha Brooks, at a health, safety, security and environment conference, hosted by the American Chamber of Commerce of Jamaica (AMCHAM), in association with the National Health Fund (NHF), and several private sector entities, at the Jamaica Pegasus Hotel, in Kingston.
“If we are lucky, we could see an improved rating outlook from the international credit quality rating agencies. What rating agencies look for is a Net International Reserve (NIR) figure that covers at least 27 to 29 weeks of imports; that is what is considered healthy for Jamaica. We are currently at 13.1 weeks of imports,” she pointed out.
Ms. Brooks cited the Government’s renewed focus on multilaterals, it having secured loans totalling nearly US$1 billion since last year, from the World Bank, the Inter-American Development Bank, and the Caribbean Development Bank.
“Together, with the possible IMF stand-by agreement, these amounts could significantly reduce the risk that Jamaica faces of a full-blown balance of payment crisis,” she pointed out.
The Treasury Manager argued that the country’s NIR had declined since last September as a result of lower foreign exchange earnings from tourism and exports, a drop in remittance inflows, and heavy Bank of Jamaica intervention in the foreign exchange market. However, she explained the reason the Central Bank needed to intervene to keep interest rates low.
“Investors will always look at what rates are prevailing in each of the three markets – the foreign exchange market, the Jamaican dollar fixed income market, and the US dollar fixed income market. If interest rates are high in the Jamaican dollar market, your monies will flow into Jamaican dollar denominated debts. This will affect savings accounts, current accounts, bonds and registered bonds,” she told the audience.
On the other hand, she noted, if interest rates decline, investors will speculate on the foreign exchange market, and guard business portfolios against devaluation and inflation. “The Central Bank does not have a problem with devaluation of the currency, what it has a problem with is inconsistent and destabilised movements in the currency,” she remarked.
She said interest rates are moderating, and asserted that the Ministry of Finance and the Public Service has begun to follow the trends being set by international central banks. “Everyone recognises that in a recession, lower interest rates to stimulate production, encourage borrowing, and generate economies of scale, is the best way to go. We have begun to get on that bandwagon. There can be no doubt that if interest rates continue to trend down, especially if there is stability in the local currency, that this will lead to lower inflation for us,” she explained.