Published: Friday July 11, 2008
The Jamaican broke through the $72 mark in the past week, and continues to slide, notwithstanding strong interventions and an interest-rate hike by the central bank.
On Wednesday, the currency closed on the spot market at $72.19 against the US dollar, a new record low, having hit $72.06 last Friday, following a more than six cent decline.
The Bank of Jamaica, signalling a positive outlook, said that the most recent movement in the exchange rate is related to payments due to overseas creditors.
"This occurred at a time when local banks and other financial institutions have been reducing their exposure to credit lines offered by correspondent banks and investment houses," said the central bank.
Three weeks ago, Jamaica raised US$350 million (J$25 billion) on the international capital markets through a 10-year bond issue.
Those inflows notwithstanding, the net international reserves closed down by US$30 million, at US$2.23 billion at the end of June.
"The new GOJ 2019 bond issued last month by Morgan Stanley and Deutsche Bank placed additional pressure on the currency as local investors sought to participate in the new offering," said Clay Moodie, assistant vice-president of treasury at Scotia DBG Investments Limited.
Total GOJ debentures/bonds outstanding as at July 1 is $275 billion, with the country total external debt stock now at $438 billion.
Dollar devalued
For the month of June alone, the central bank, to steady the currency, intervened in the market six times, the last time on June 26 when it sold the greenback to its primary dealers for $71.76 for resale at J$71.81.
"The dollar has been devalued because of a lack of liquidity in the market which can be attributed to the hike in oil prices, lack of confidence and the Carreras dividend payout on June 30 - because of its payment to BATCo," said Michele Hirst, research analyst at Stocks & Securities Ltd.
British American Tobacco owns 51 per cent of Carreras.
"There is heavy US dollar demand but supply is insufficient," she added.
"I also believe there is some degree of speculation and hoarding which has contributed to the shortage in supply," said Moodie.
The central bank says it expects the pressure on the currency to ease in the next quarter.
"It is expected that this episode will normalise and that the normal supply of foreign exchange to the market will be sufficient to meet normal demand over the course of the September quarter," said the BOJ.
More liquidity
Added Hirst: "With the Lascelles and RBTT payout on the horizon, we expect to see more liquidity in the market, providing some relief of the pressure on the dollar."
The RBC/RBTT acquisition which closed in June, and the Angostura payout of approximately $325 million to Lascelles shareholders, due July 28, should boost NIR over the next two months, according to Moodie.
None of the analysts polled were prepared to predict where the JMD would end.
"Hard to call where the dollar will end up as we are moving into hurricane season, but historically, we have devalued between five and six per cent over the last two years," said Moodie. "I believe the BOJ is comfortable with that pace."
Source:
Sabrina Gordon
Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20080711/business/business3.html
sabrina.gordon@gleanerjm.com
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