Year in review: fixed income, FX markets in 2013 — Part 2
The Sterling Report
TODAY we continue our review of the local fixed income and foreign currency market of 2013 and we look at what happened to the Jamaican dollar (JMD) vis-à-vis the US dollar (USD), inflation rate and the NIR.
Foreign exchange market
Similar to 2012, JMD devalued against the USD on each month in 2013, but unlike 2012 the monthly devaluations in 2013 were far more erratic. JMD started the year with a weighted average selling rate (WASR) of J$92.98 per US$1 and quickly lost value (in excess of 6 per cent) by the end of the first quarter 2013, closing at a WASR of 98.89 at March 31st. The first quarter also saw the highest monthly devaluation rate of 3.2 per cent being recorded in February. The second quarter saw a significant drop in the devaluation rate from 6 per cent to 2.50 per cent (WASR of 101.38) and the third quarter even lower at 2.2 per cent (WASR of 103.60). The declining trend was however halted in the 4th quarter with a devaluation rate of 2.7 per cent for the quarter and the JMD closing the year with a WASR of 106.38. The JMD recorded a devaluation of 14.4 per cent or loss of $13.40, in stark contrast to a devaluation of 7.4 per cent or a loss of $6.38 in 2012. BOJ occasionally sold USD to market to stem the slide of the JMD but was hampered by a depleted NIR and frequently sold open market instruments and occasionally moral suasion to curb the demand for USD and assault on the exchange rate. The outturn for 2013 was the highest devaluation rate recorded over the last 5 years (beating the 14 per cent devaluation rate in 2008) and the second highest in the last 10 years (trailing 18 per cent in 2003). The average annual rate of devaluation for the last 10 years has been approximately seven per cent, so 2013 doubled that rate.
Net international reserves
Net International Reserves (NIR) began 2013 at a level of US$1.125 billion (reserves of 13.21 weeks) but steadily declined to US$866.18 million by April (reserves of 12.08 weeks) which was perilously close to the international benchmark of 12 weeks. With the injection of multi-lateral flows, the NIR was restored to the $1billion level and reserves in excess of 13 weeks by June, but had fallen to US$836 million as at November for reserves of 11.03 weeks, representing a decline of approximately US$290 million for an average monthly decline of US$26.4 million. The NIR for December 2013, however, increased to US$1,052.8 million to represent 12.64 weeks of goods and services imports reflecting a Year over Year decline of approximately US$75 million.
Jamaica recorded a calendar year-to-date inflation rate of 9.1 per cent as at November 2013 which was already ahead of the eight per cent outturn for the calendar year 2012. Actualised monthly inflation rates averaged 0.8 per cent in 2013, with June accounting for the lowest level at 0.2 per cent and September producing the highest rate at 2.80 per cent. Fiscal year-to-date inflation was estimated at 6.2 per cent (compared to 5.2 per cent for a similar period in 2012), and the point-to-point inflation rate was at 10.20 per cent versus 7.4 per cent for the corresponding period in 2012. The Central Bank still maintains inflation rate projection for the fiscal year ending March 2014 of up to 10.5 per cent, which would indicate that they have managed to keep it in the range projected. Despite the increases in interest rates post-NDX, real interest rates continued to be negative during 2013.
Eugene Stanley is Vice President, Fixed Income and Foreign Exchange Services at Sterling Asset Management Ltd. Sterling is a licensed dealer and provides financial and advisory services to the corporate, individual and institutional investor. Feedback: If you wish to have Sterling address your investment questions in upcoming articles, please e-mail us at: email@example.com or visit our website at www.sterling.com.jm