UWI economist Dr Roger Hosein has called for a depreciation of the TT dollar by more than the additional 3.3 per cent suggested by Finance Minister Colm Imbert, in presenting the mid-term budget review yesterday.
Describing the minister’s proposal as “unreasonable,” Hosein suggested that the exchange rate be allowed to slide more than the minister stated.
Hosein said: “I think the principle of allowing the exchange rate to devalue within a certain range is what we need to consider and to retool. It basically means that we are going to maintain a managed float. Maintaining a managed float has its value if the economy is sufficiently externally competitive.
“What has happened in the last 15 years or thereabouts is the very competitiveness of the manufacturing sector and export services sector segment of the economy have experienced a significant fall in competitiveness because of the rise in domestic wages or prices.
“As a consequence, some modification of the nominal exchange rate is necessary to help improve the external competitiveness of these sectors.”
“Whether or not a currency devaluation at the level Mr Imbert is saying would correct and bring about the extent of external competitiveness improvement that is desired... I think we should let the currency slide some more, maybe Mr Imbert has done his homework and came up with that extent of a devaluation but to me it does not sound reasonable.”
Yesterday, Imbert said: “Our exchange rate should not fluctuate at this time by more than seven per cent from the rate of exchange that prevailed in September 2015. Appropriate measures will therefore be taken to ensure that our exchange rate does not move by more than a further 3.3 per cent from today’s rate.
“We will thus utilise a combination of fiscal and monetary policies to manage foreign exchange demand and supply, allowing the exchange rate to adjust in response to demand, prudently utilising our foreign reserves and considerable foreign exchange buffers to make adequate supplies of foreign exchange available, while at the same time staying within the seven per cent range of the exchange rate prevailing in September 2015.”
Looking at the revised price of US$35 per barrel for oil and US$2.00 mmbtu of gas, Hosein described the adjustments as “reasonable” and therfore he congratulated the Minister “for going at such a value.”
However, concerning the US$2.00 mmbtu for gas, Hosein said he would have put the gas price at US$1.90 mmbtu and not what was stated by Imbert. Hosein said he waits to see how this would work. He praised the Ministry of Finance’s team for adjusting both prices saying they were “on the ball” with conditions which the country faced.