KINGSTON, Jamaica – Governor of the Bank of Jamaica (BoJ), Richard Byles, says the local economy continues to expand, which supports increases in aggregate demand for goods and services and can potentially drive inflation upward.
Byles, speaking at the BoJ’s Quarterly Monetary Policy Report, said that the Planning Institute of Jamaica (PIOJ) has estimated that the economy grew by 1.5 per cent for the June 2023 quarter and there are signs that the economy continued to expand for the September 2023 quarter.
ast week Tuesday, the Statistical Institute of Jamaica (STATIN) also reported that the unemployment rate for Jamaica at April 2023 was 4.5 per cent, the lowest on record.
“This is indeed a momentous achievement for the Jamaican economy. Data on the unemployment rate, supported by anecdotal information about wage adjustments in selected private sector industries, indicates that the domestic labor market is very tight,” Byles told reporters.
He said from the BoJ’s perspective, this could become a threat to inflation if labor shortages translate into large wage increases and higher prices.
Byles said that the Central Bank continues to project that real growth domestic product (GDP) will grow by one per cent to three per cent for the financial year 2023/24, largely the result of expansion in the mining sector as well as continued growth in tourism and its allied industries.
“Over the medium term, the economy is projected to settle at its long-run growth rate of one to two per cent,” he said.
The BoJ Governor said that the financial institution continues to anticipate that higher agricultural prices, higher education costs and wage pressures will contribute to inflation remaining a little above the target range for the next two months.
“Notwithstanding this uptick, inflation is forecasted to generally decelerate to the Bank’s target
range of four to six per cent by the December 2023 quarter and, with the exception of a few months in 2024, remain there,” Byles said, adding “this outlook is consistent with global consensus forecasts for the path of certain commodity prices as well as the bank’s continued tight monetary policy stance”.
He told reporters that inflation could, however, rise above the projected path.
“Higher-than-projected future wage adjustments in the context of the tight labour market, second-round effects from the agricultural price inflation, a worsening in supply chain conditions and an unexpected rise in world oil prices could put upward pressure on inflation.
“ Lower-than-projected inflation could be caused by weaker-than-expected global growth, which could negatively impact tourist arrivals and reduce domestic demand.”
Regarding the foreign exchange (FX) market, Byles said it has remained relatively stable within a narrow band over the past two years reflecting, in part, the actions taken by the BoJ.
He said to prevent undue volatility in the foreign exchange market, BOJ sold approximately US$585 million via its B-FXITT facility so far this year.
“When these sales are set against BOJ purchases, however, the result is that the bank net purchased approximately US$761million over the period. In this context, at 16 August 2023, Jamaica’s gross international reserves remained substantial at approximately US$4.6 billion, which exceeded the standard measure of adequacy by approximately 15 per cent.”
Byle said that the BoJ projects that the gross reserves will continue to remain adequate in the medium-term, adding “one of the outcomes of the bank’s management of the FX market is that it has served to anchor inflation expectations”.
He said that in the BoJ’s latest survey of inflation expectations, less than 14 per cent of the respondents indicated that strong depreciation in the exchange rate was the most important factor behind their view of future inflation.
“The most frequently cited factor was changes in the prices of imported commodities such as grains and oil. The last time the exchange rate was the dominant reason, was February 2021, at which time 41 per cent of the businesses surveyed reported the exchange rate as the most important factor guiding their inflation expectations,” the Central Bank Governor added.
Byles told reporters that inflation “is on its way down and our expectation is that it will continue to decline, except for some months when the general level of price increases could be adversely affected by exceptional circumstances.
“Bank of Jamaica remains committed to achieving its primary mandate of preserving price stability. The Bank will continue to closely monitor the global and domestic environments for potential threats to Jamaica’s inflation target and act accordingly.”
He said among other factors, Bank of Jamaica’s future monetary policy decisions will pay careful attention to the incoming data relating to the headwinds noted above, such as wage pressures and second round effects of agricultural price inflation.
