‘Continued exchange rate flexibility is needed to maintain competitiveness’. Those were the words of the International Monetary Fund following the conclusion of their 11th and 12th quarter reviews under the Extended Fund Facility (EFF) programme last week Friday.

The statement comes against a background of warnings issued by the Jamaica Chamber of Commerce (JCC) that “if this rate of devaluation is left unchecked, it could contribute to an erosion of confidence, which could, in turn, contribute to further devaluation, increased inflation and prove to be a damper on investments”.

It also follows efforts by the Bank of Jamaica (BOJ) to intervene in the market with the aim of maintaining stability as the Jamaican dollar passed the $125 mark relative to the US dollar last week

IMF Mission Chief to Jamaica Dr. Uma Ramakrishnan did not offer the fund’s take on the foreign exchange market during her post review press briefing last week, however, in a statement posted on the Fund’s website shortly after, the IMF indicated that the current level of the exchange rate ($125.3316 as at last Friday) “appears broadly in line with fundamentals but the balance of risks points toward a modest overvaluation”. In its statement, the IMF continued, “to avoid eroding external competitiveness, the currency should be allowed to depreciate to offset the inflation differential with trading partners”. Based on this statement, the IMF is of the belief that the continued depreciation of the Jamaican Dollar, is in line with its own expectations.

Finance Minister Audley Shaw had indicated last week that discussions with BOJ Governor Brian Wynter resulted in the decision to do some minimal amount of intervention, meant to ensure that the exchange rates don’t catapult in any disorderly fashion.

However, the IMF says it believes that a flexible exchange rate “implies that any intervention in the foreign exchange market should be predominantly to build reserves and smooth out excessive exchange rate volatility”.

At December 2015, the average rate was US$1 to J$120.24 moving from US$1 = J$115.32 at the beginning of January last year. This was a decline of 4.2% for all 2015.

Between January and May of this year, however, the dollar moved from US$120.24 to US$1 = J$125.33, representing a decline of 4.2% since the beginning of the year.