The US dollar is in high demand, but purchases have been curtailed by limited supply. - File

Jamaica's largest bank by assets and other traders have confirmed a shortage of foreign exchange in the market, but say instead of restricting supplies, customers are being advised to stretch their orders over several days.

The supply challenge has seen the local currency falling in value daily at prices that crested the $90 mark for the first time on Tuesday.

National Commercial Bank's admission of limited supplies - by spokeswoman Sheree Martin - was echoed by GraceKennedy's cambio FX Trader last week, amid complaints from businesses that their normal orders of foreign currency to pay up import bills were being limited by quota.

One NCB customer who requested $70,000 recently was told he could only get US$20,000 on that day, and the remainder over several days.

Similar complaints

The Jamaica Manufacturers' Association says there have similar complaints of restrictions from some members, but president Omar Azan said it would take a survey to determine the scope of the problem.

That survey, he said, is under way.

Before now, the imbalance in the market, and the declining exchange rate, had been blamed on speculators and hoarders of hard currency, creating, the authorities have said, an artificial shortage.

Two weeks ago Finance Minister Audley Shaw warned public sector agencies to stop playing 'fast and loose' with the currency, charging that government bodies were hoarding cash, or face consequences which he did not spell out.

Now the argument has shifted to a shortage of supply.

Martin, in the meantime, said it was not bank policy to restrict currency buyers, saying requests for cash are satisfied if the foreign exchange is available.

"Based on what market demand and supply are like, we are selling as normal what we have, once we can," she said.

Stagger orders

Scotiabank Jamaica and FirstCaribbean International Bank Jamaica similarly said they advise clients to stagger their orders.

"No restrictions," declared Clovis Metcalfe, managing director of FirstCaribbean Jamaica, unequivocally.

"However, purchases are dependent on availability, that is supply and demand. If inflows are down, it restricts the amount of hard currency available for sale," he said.

"If inflows are reasonable, then foreign currency funds will be available; if inflows are contracted, then our ability to meet the demand would be restricted."

Supplies below normal

It's not clear how much of a shortage there is, but an analysis of activity in the market over four periods indicate that supplies are below normal levels, even with several instances of Bank of Jamaica selling cash into the system to satiate demand.

From January 2 to February 6 this year - a total of 26 trading days - the banks and other authorised dealers sold US$971 million of cash to businesses and other buyers. In three years prior to that, supplies topped $1 billion each time, hitting $1.2 billion in 2007.

And daily trades averaged $37 billion, compared to the US$40 billion to US$43 billion of sales in the prior years.

This year too, the gap between inflows and outflows was the widest it has been - US$75.7 million in the review period - or put another way, the banks, cambios and other dealers, supplied a larger volume of cash than they took in, demand they would have had to reach into inventory or turn to the central bank to satisfy.

More sold than bought

In the previous years, the gap was US$50 million in 2008, but in 2007, people actually sold US$1 million more to the banks and cambios, than they bought.

One dealer representative says his company is not fully satisfying demand because he has limited cash to sell.

"A lot of customers request money and we are not able to fill it," said Richard Blake, product development manager in charge of foreign-exchange transaction at the GraceKennedy subsidiary, FX Trader. "Demand far outweighs inflows."

The president of the Private Sector Organisation of Jamaica (PSOJ), Christopher Zacca, says he is aware of businesses having difficulty obtaining hard currency, but does not believe the problem stems from a shortage.

It is, he said, a function of pricing.

Issue of affordability

Indeed, as the value of the Jamaican currency declines, it takes a lot more local dollars to buy the US dollar, making the issue one of affordability.

Last year, at this time, it took less than $72 to purchase one US dollar; today the cost is more than $88, and at least one transaction was done at $90.10 this week.

A US$100,000 purchase would have cost $7.2 million then, now it's 23 per cent higher at $8.8 million.

"I am not sure what others are doing but we sell a portion at the board rate and amounts over that at negotiated rates," said Scotiabank's Hugh Miller, the assistant general manager of treasury and foreign-exchange trading, explaining his bank's forex pricing structure.

Not fixed

The amount of cash on offer for sale is not fixed, he said, but decided each day based on subscriptions for that day.

"What we have found is that instead of buying say US$10,000 all at once, customers buy it over a series of days thereby getting a fairly more attractive weighted rate," Miller said.

Analysts still believe there is sufficient foreign currency in the system but says persons are hedging by holding on to hard currencies because of uncertainties with the economy.

"Conversion is less likely now. More persons are holding and trying to secure more favourable terms given the expectations in the market," said Tyrone Brown, research analyst at Barita Investment.

In recent weeks the Bank of Jamaica has intervened aggressively in the foreign-exchange market, selling US dollars to meet demand and seeking to shore up the plummeting Jamaican currency.

Lending agency inflows

Additionally, there were inflows from lending agencies of some US$300 million, atop the US$300-million credit window the central bank had opened to provide liquidity support to financial houses toward the end of last year.

Generally, sales of currency into the banking system and other authorised dealers, tend to track closely with the amounts they in turn sell to customers on the market.

The central bank tends to intervene where demand significantly outweighs supply, to ensure that the value of the Jamaican dollar is not driven too far down on any given day.

There were two instances in mid-January where outflows doubled inflows: on January 16 when dealers sold US$89 million - the most active day recorded in recent years - but took in US$45 million from customers; and again on January 17 when the dealers sold $52.7 million but took in US$28.8 million.

Analysts said BOJ intervened in the market on both days.

sabrina.gordon@gleanerjm.com