DiGJamaica had predicted Jamaica would exceed September’s IMF NIR target in previous blog postings here, here and here. Our researchers’ targets were off by US$10Million. As of September 30, 2013, Jamaica had exceeded the IMF NIR target by 3% or US$27Million.
The target for end of September was US$883Million, Jamaica’s NIR at this date is US$910Million.
The key to the missed prediction was something we mentioned in earlier blog posts: the net domestic assets (NDA) accumulated by the Bank of Jamaica. Since the start of the IMF agreement, the Central Bank has built an NDA position to act as a “armoury” in case the purchase of US currency was needed to meet the NIR target.
Since the signing of the IMF agreement we have had two relatively large monthly depreciations in the Jamaican dollar: June and September – both months in which we had to meet the IMF targets.
DiGJamaica can only hypothesize however, that the Bank of Jamaica has used its Net Domestic Assets position throughout the month of September to purchase approximately US$17.4Million. This was derived by dividing the change in Net Domestic Assets by the average US$ exchange rate for the month of September.
It can be hypothesized that something similar happened in June but having just received IMF funds, Jamaica was still “flush” with borrowed cash.
Hypothetically, with the BOJ stepping into the US$ currency market on both occasions, the Central Bank created demand that outweighed supply, therefore driving up exchange rates.
Finance Minister Peter Phillips has suggested that negotiations are ongoing with the World Bank and the Caribbean Development Bank for a further capital injection. This would help alleviate some of the pressure off the BOJ as the targets get harder and harder to attain in Jamaica’s weak economy.
The question now turns to, what will December’s exchange rate look like?