In May the Jamaican currency devalued by 0.1% which represents the smallest rate of change since the start of the year. However, in comparison to the same period last year (May 2012) it represents a 13% depreciation and 16% depreciation when compared to 24 months ago (May 2011).
In April, due to speculations about the signing of the IMF deal, the J$ weakened against the US$, devaluing to a low of J$99.81 on the 12th of April. However, following the announcement of the approval, it appreciated by 1% to a high of J$99.01 by the 7th of May. At this point it remained fairly stable for the next 10 days.
The J$ reached a two-month high of J$98.96:US$1 on May 20, but has devalued steadily since then to J$99.45, a 0.5% decline in only 11 days.
The performance can be attributed to boost in consumers’ and investors’ confidence in the market. It could also be attributed to increased liquidity in the foreign exchange market, based on the receipt of US$202.6Mln in loan funds under the IMF’s Extended Fund Facility programme on May 3, 2013.
However, the staff of the IMF believe that the Jamaican currency is overvalued. The opinion was supported by using three different methodologies to assess the currency: The Macro-Balance approach (MB), The External Sustainability approach (ES) and The Equilibrium Real Effective Exchange Rate approach (EREER). At the time of the assessment the overvaluation was estimated to be between 9-22 percent based on the respective methodologies.
For more information about the role of the exchange rate under the IMF program check out our IMF Special Report. Fueled by research, it is the first and only online information portal about Jamaica’s relationship and interaction with the IMF, providing valuable news, data, timelines and resources.