US$ demand down $1B PA, supply up

Buying of foreign currency demand fell sharply in the first 5 days of December, this year compared with the same period in 2013, at a level that would translate to over $1 billion per year, if sustained.
At the same time purchases by dealers climbed US$4 million, at a rate around US$300 million per annum. According to data compiled by IC Insider from the daily Bank of Jamaica trading reports, a total of $163 million were purchased this week, this compares favourably with the $159 million purchased by dealers in the 2013 period. While dealers sold US$175 million in the first 5 days of December, last year, this year only US$155 million was sold, a fall of US$20 million, this translates to just over $1 billion per year.
The near evenest of inflows and outflows has not stemmed the slippage in the exchange rate versus the US dollar, after a period of slight revaluation between August and October. Bank of Jamaica stepped in by increasing their take from the market from 15 percent per day to 20 percent from November and even intervened on a number of days our source informed us, thus reversing the appreciation of the Jamaican dollar.
The Jamaican dollar ended 2013 at $106.38 to one US dollar and reached $113.79 on Friday, to one US dollar. The slippage since the start of the year is just 7 percent, and is in line with inflation to October and would result in a slight gain in competitiveness in the currency based on inflation differential between Jamaica and the USA, if inflation were to remain around these levels.
Last year December the rate started at $105.87 and ended at $106.38 with most of the slippage occurring in the first half of the month. Flows of foreign exchange usually pick up in the second half of December and is likely to slow the rate of decline, unless Bank of Jamaica determines that the currency needs to slip some more, but they could wait until 2015 to effect any needed adjustment to the rate, with 2014 almost over. With the price of oil well under US$70 per barrel the demand for foreign currency will fall and should allow BOJ to lower interest rates while building up the reserves in the first half of 2015 at least.