KINGSTON, Jamaica – The Bank of Jamaica (BOJ) says the island’s economy is doing well and that the foreign exchange market has remained relatively stable since the start of the year.
BOJ Governor, Richard Byles“For the year 2021/22, the Bank expects real GDP (gross domestic product) growth to be in the range of seven to 10 percent,” BOJ Governor, Richard Byles, said, noting that the improved economic situation is based on the latest growth and employment out-turns.
He told reporters during the BOJ’s digital quarterly media briefing that data from the Statistical Institute of Jamaica (STATIN), showed the economy grew by 6.7 percent during the October to December 2021 quarter.
He said this out-turn was indicative of improving economic activity, noting that the level of growth recorded during the period was faster than that for July to September 2021.
Byles also indicated that growth in 2022/23 is projected to be in the range of two to four percent.
“The Bank expects that this GDP growth will continue to be driven by the services industry, particularly tourism. The forecast also assumes that production at one of Jamaica’s main alumina plants [JAMALCO], which had been temporarily closed, will resume by June 2022,” he said.
Byles highlighted the fall in the unemployment rate to a historic low of 6.2 percent, based on STATIN’s January 2022 labor force survey, as “an exceptional performance, by any measure, noting however, that the economy “is not yet out of the woods”, citing the impact of the Ukraine-Russia conflict and the emergence of a firth wave of the coronavirus (COVID-19) pandemic.
The Central Bank Governor said the conflict “has fueled further significant increases in international commodity prices and has contributed to a substantial rise in global and domestic inflation”.
With inflation tracking above the upper end of the Bank’s four to six percent target, Byles said the BOJ is cautiously optimistic that there could be some respite in sight, “provided that geopolitical tensions [between Ukraine and Russia] do not escalate”.
The rate of inflation for the 12-month period ending April 2022 was 11.8 percent.
The Governor noted that while already high international commodity prices are expected to increase further over the next few months, the global consensus forecast is for a fall during the second half of 2022, influencing a decline in inflation among the country’s trading partners.
“Jamaica’s inflation is expected to follow a similar pattern, rising in May and June, but falling in the second half of the year. After carefully considering all the risks around this outlook, it is our view that the Bank of Jamaica should continue its program of monetary tightening until we have seen the projected turn in inflation materialize,” he noted.
The Bank’s Monetary Policy Committee voted earlier this month to increase the policy rate by a further 50 basis points, to five percent, effective May 20, and Byles said this decision was based on the BOJ’s forecast for further increases in inflation over the next two months, before the rate begins to decline.
“This forecast is, however, conditional on our assumption that tensions between Russia and Ukraine do not escalate and inflation among Jamaica’s trading partners fall,” he added.
Byles said the Bank anticipates that these measures will continue to cause interest rates on deposits and loans to rise further, “making savings in Jamaican dollars more attractive, relative to foreign currency assets, and borrowing in Jamaican dollars more expensive”.
“In turn, these measures will help to reduce the demand for foreign currency, leading to continued stability in the exchange rate, and will reduce demand in the economy, limiting the ability of businesses to pass on price increases to consumers.”
Meanwhile, Jamaica’s foreign exchange market has remained relatively stable since the start of the year with Byles saying this partly reflects actions taken by the BOJ, through its Monetary Policy Committee (MPC), in response to the higher than targeted inflation out-turn.
The Statistical Institute of Jamaica (STATIN) reports that inflation for the 12-month period, ending April 2022, was 11.8 percent.
Byles told reporters that the financial institution had also taken the decision to pursue other measures to contain Jamaican dollar liquidity expansion and maintain relative stability in the foreign exchange market.
“Complementing these policy rate increases, the Bank sold approximately US$552 million to the foreign exchange market since October 2021, more than twice the amount… compared with the previous corresponding period. In addition, the Bank adjusted the net open position limits for deposit-taking institutions (DTIs).”
The Governor said these actions contributed to the maintenance of stability in the exchange rate since the start of November 2021 and have been critical in preventing a further rise in inflation.
“Notwithstanding these actions, May 17th, 2022, Jamaica’s gross international reserves remained substantial, amounting to approximately US$4.3 billion. The Bank projects that the gross reserves will continue to remain adequate in the medium term. The MPC noted that the Bank’s strong international reserves reinforce its ability to support the foreign exchange market, as needed.”
Byles said the Bank’s current decision is based on its forecast for further increases in inflation over the next two months, before it begins to decline.
“This forecast is, however, conditional on our assumption that tensions between Russia and Ukraine do not escalate and inflation among Jamaica’s trading partners fall.”
The Governor said the Bank expects that the measures will continue to cause interest rates on deposits and loans to rise further, “making savings in Jamaican dollars more attractive, relative to foreign currency assets, and borrowing in Jamaican dollars more expensive.
“In turn, these measures will help to reduce the demand for foreign currency, leading to continued stability in the exchange rate, and will reduce demand in the economy, limiting the ability of businesses to pass on price increases to consumers,” Byles added.
The Governor also advised that DTIs’ balance sheets have remained adequately capitalized and in compliance with prudent liquidity standards.
“At the same time, non-performing loans remain well below our threshold for concern and continue to be fully provided for by the DTIs. All these indicators highlight the general stability in the financial system.”
Byles also indicated that private-sector credit provided by DTIs has been growing, albeit at a relatively slow pace, noting that this reflects the lagged effect of the pandemic on demand, particularly from businesses.
“I wish to reaffirm Bank of Jamaica’s commitment to using all the tools within its powers to fulfil its mandate of price stability, including making Jamaican dollar assets more attractive, keeping a tight lid on liquidity, and maintaining stability in the foreign exchange market. The Bank will continue to closely monitor the global and domestic economic environment and base future policy decisions on incoming data,” he assured.
