PIOJ Growth-Inducement Strategy - Planning Institute of Jamaica

The Foreign Exchange Market 17
At the end of December 2010, the average nominal exchange rate was $85.86 per
US$1.00, representing a nominal appreciation of 4.2 per cent compared with the end of
December 2009. This performance for 2010 contrasts with an 11.3 per cent nominal
depreciation recorded during 2009. 18 Most of the appreciation observed during 2010
occurred in the April-June quarter when the Jamaican currency appreciated by 4.1 per
cent. Marginal appreciation was recorded for the first and fourth quarters of the year as
the July-September quarter registered a 0.3 per cent depreciation. The market displayed
relative stability during the third quarter of 2010, in spite of demand pressures due to a
decline in net private capital inflows and reduced foreign exchange supplies from tourism
during the month of September.
The performance in the foreign exchange market during 2010 was influenced primarily
by general improvements in Jamaica’s macroeconomic conditions. Following the success
of the Jamaica Debt Exchange initiative and the signing of a Stand-by Arrangement
(SBA) with the International Monetary Fund (IMF), market conditions improved.
Investor confidence improved as a result of these two initiatives and was further
strengthened by the subsequent passing of end of March, June and September IMF
quantitative targets. Investors showed increased willingness to hold Jamaican
denominated instruments due to a favourable inflation outlook and increased confidence.
Throughout the year, foreign exchange supply was supplemented by: (i) higher
remittance inflows 19 ; (ii) increased inflows from the International Development Partners;
(iii) reduction of the foreign currency reserve ratio by the BOJ during the first quarter of
2010 which led to the immediate release of US$30.0 million; (iv) higher tourist receipts.
On the demand side, the continued decline in aggregate demand resulted in weak demand
for foreign currency which further influenced the appreciation of the dollar.
3.0 Sectoral Performance
3.1 January - September 2010
The economy contracted by 1.3 per cent for the first nine months of 2010 with the Goods
Producing and Services Industries declining by 1.9 per cent and 1.5 per cent,
respectively. The decline in real GDP was attributable to:
the lagged impact of the global economic crisis;
drought conditions which impacted some industries in the first and second
quarters of 2010;
reduced operations at Air Jamaica given the airline’s sale to Caribbean Airlines;
17 This section is being assessed up to September 2010.
18 The depreciation recorded in 2009 reflected the impact of the economic downturn which resulted in a
fall-off in supply reductions in remittance inflows and mining and quarrying receipts, and increased
demand pressures due to market uncertainty.
19 For the January to November 2010 period net remittance inflows were US$1,713.0 million, a 6.4 per cent
increase compared with the corresponding period of 2009.
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