Business

Jain predicts year-end value of $136 to US$1

Wednesday, May 17, 2017

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According to financial analyst Sushil Jain, based on conditions in the economy, the Jamaican dollar (JMD) - which last week reached the $130 to US$1 level, is likely to end the year at $136 to US$1.The following is his opinion:

The exchange rate is determined by the interplay of many factors, particularly demand and supply of foreign exchange. Supply is affected by the exports of goods and services, tourism inflows, capital inflows, remittance inflows, etc.

Demand is affected by the level of imports of goods and services, capital outflows, expectations regarding future exchange rate, among other factors.

The differential in the inflation level of the country and that of the trading partners also influences the exchange rate.

The level of confidence in the economic and other policies of the country also affects the demand and supply of foreign exchange.

Having learnt lessons from history, there is an increase in the number of investors/people trying to hold assets in USD instead of JMD. This has also increased the demand for foreign exchange. It will be difficult to change this trend.

The challenge of a high level of trade deficit continues and can worsen if the projected increase in oil prices takes place.

Based on these and other factors, it will be difficult for the JMD to have a stable exchange rate. Some amount of relative stability can be expected, based on the economic policies being pursued by the government.

The impact of the increase in the level of the Net International Reserves (NIR) requires a detailed study. How does the build-up of high levels of NIR affect the rates of interest, exchange rate, debt to GDP ratio, economic growth, and so on?

What will be the impact on these if the level of NIR is reduced to, say, USD 2 billion? The government should arrange to seek advice on this matter from some top-level independent international economists.

Taking the current situation into account, I project the exchange of JMD:USD to be 134-136/1 by the end of December 2017.

— Avia Collinder

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