As demand pressures build in the foreign exchange market, commercial banks are starting to limit the amount of cash sold to customers.

"We don't have a cap in place, but what we have is a threshold on the volume sold over the counter," said Belinda Williams, manager of group corporate communications at the National Commercial Bank Jamaica (NCB).

"If amounts above the threshold are required, then that would be determined on a case-by-case basis, given supply and demand forces," she said.

Williams said the threshold is US$5,000.

The cause for such measures stem from the imbalance in the market, with heightened demand pressures in the system, she told Sunday Business.

NCB is the largest of the seven commercial banks. The second largest, Scotiabank Jamaica, has also placed limits on trades.

Scotiabank president and CEO, Bruce Bowen, said on Friday that the bank, as a matter of policy, always has a limit on trades, but that the dollar limit - which he said he did not immediately recall - was lowered because of demand pressures.

"What we have done is that when the market gets tight, we have lowered the branch limit," Bowen told Sunday Business.

Where clients need cash above the limit, he said, the branch has to get the approval of Central Treasury.

Volatility in the forex market stems from concerns about the performance of the Jamaican economy, which is again contracting, and uncertainty about when a bailout agreement with the International Monetary Fund agreement will materialise and how painful the conditions of the deal will be.

Bowen said that while the IMF talks are a factor in the market's performance, the seasonal pre-Christmas demand also adds to the pressure.

Demand pressures tend to be compounded by the reduction of flows from large supplier, the tourist industry, which is now in the off-peak season. Flows from tourism typically pick back up in early January, he said.

The uncertainty has led to reports of a re-emerging black market, but this has got pushback from financial authorities and elements of the banking sector.

defend the currency

The Bank of Jamaica spent a net US$215 million to defend the currency in the September quarter. The JMD continues to depreciate, however, because of demand pressures, falling to J$91.43 last Thursday against the USD, which is off by close to five dollars since year-end 2011 when the rate was J$86.60.

The BOJ's aggressive intervention in the forex market has contributed to the decline in the net international reserves, which were down to US$1.13 billion in October.

Year to date, the foreign-exchange market has bought up US$7.98 billion and sold US$8.42 billion, according to a summation of BOJ data.

business@gleanerjm.com