More emphasis on inflation and not exchange rate — JMMB's group research manager


Wednesday, June 12, 2019

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Jermaine Burrell, group research manager at Jamaica Money Market Brokers (JMMB) is indicating that the evolving fiscal policy direction of economists and government is to now place greater focus on the rates of inflation rather than foreign exchange fluctuations.

The JMMB executive made the comment while speaking recently (June 6) at the Bank of Jamaica (BOJ) -conducted seminar on 'Demystifying Inflation' held at the bank's auditorium in Kingston.

Burrell pointed out that while “Jamaica started out relatively good as an economy in the 1960s and 1970s, with a well-behaved foreign exchange rate, the frequent fallouts from shocks created a level of instability for the exchange rate. He claimed that what started out as a very important economic variable later began to encounter several upsets”.

The research manager then proffered that outside of volatile market activities and competitiveness from the introduction of liberalism, the problems experienced with foreign exchange were further compounded by a series of paradigm shifts within the market.

“The fixing of the exchange rate also placed doubt on the economy, as it suggested to the market that the government is able to provide all the foreign exchange needed at a set price,” he said.

Burrell noted further that this would later pose a problem if the Net International Reserves (NIR) was not sufficient to meet the needs of the market for purposes such as investments, as this opens the foreign exchange rate to be constantly tested by the market. More problematic, he argued, is the fact that if the NIR becomes depleted the country is then faced with the dreaded need-to-borrow problem.

“Inflation, on the other hand, is a rate which can be targeted. Through prudent monetary policies, inflation targeting tends to focus more on domestic considerations which are better able to respond to shocks in the market, which is not possible under an exchange rate system.

“The exchange rate is just one price of one currency in comparison to another, while the inflation rate is the cost price of many goods consumed by citizens grouped together in a basket.

“Many Jamaicans tend to view the health of the economy as integral to the dollar value, but this should not be the case,” Burrell posited with surety.

Constant Lonkeng Ngouana, IMF representative for Jamaica who also spoke at the seminar added that “inflation affects everyone directly” as such he urged that key focus and tracking of this variable should matter, especially to any country that is serious about growing it's economy”.

Other presentations on “demystifying inflation” were done by Courtney Allen of the BOJ and Peter Blair Henry, professor of economics and finance at New York University.

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