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BOJ promises updated projections

THE BANK of Jamaica (BOJ) says it will, in short order, update its projections for the economy, following new data released by the Statistical Institute of Jamaica (Statin) which shows that annual inflation dropped to 6.2 per cent for the period ending March 2023, the country’s lowest inflation movement since August 2021.

Monthly inflation in March rose marginally by 0.1 per cent, while annual inflation increased by 6.2 per cent. Still, it’s an improvement on inflation levels the country has seen for more than a year, during which time changes in annual inflation largely remained above 10 per cent, according to Statin’s data.

The movement in March’s inflation rate marks the fourth consecutive period where Jamaica’s inflation rate has landed below the prior period’s movement.

Statin’s data show that annual inflation dipped from 10.3 per cent in November 2022 to 9.4 per cent by December 2022, and down to 8.1 per cent for January 2023. Annualised inflation at 6.2 per cent for March 2023 is down from 7.8 per cent in February 2023, inching closer to the Government of Jamaica-established target range of four to six per cent.

In its report, Statin pointed to the division ‘Food and Non-Alcoholic Beverages’ as the largest contributor to the 6.2 per cent movement in inflation for the period ending March. Price of goods within the division had increased 10.1 per cent over the period, largely from a rise in ‘Cereal and cereal products’, up 12.5 per cent; ‘Meat and other parts of slaughtered land animals’, up 9.8 per cent; and ‘Vegetables, tubers, plantains, cooking bananas and pulses’, up 8.3 per cent.

“Upward movements in prices for flour, cornmeal, bread, and rice impacted the class ‘Cereals and cereal products’. Higher prices for turkey neck, beef, chicken, and other meat products contributed to the rise in the index for the class ‘Meat and other parts of slaughtered land animals’. For the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’, increased prices for sweet potato, Irish potato and yellow yam were the key contributors,” Statin said in its release.

Also contributing to the point-to-point inflation rate was the division ‘Restaurants and Accommodation Services’, which increased by 16.9 per cent. The increase, Statin said, was due to higher prices for meals consumed away from home at cookshops, fast-food restaurants, and other dining establishments.

However, the upward movements in the divisions were tempered by a 1.9 per cent decline in the index for the group ‘Housing, Water, Electricity, Gas and Other Fuels’.

Responding to the headline ‘inflation outturn of 6.2 per cent at March’, the BOJ yesterday told Wednesday Business that the economic performance is in line with the expectations of the central bank and supports its projection for 2023.

Earlier this month, Senior Deputy Governor of the BOJ, Dr Wayne Robinson, reportedly said that the central bank expects inflation to fall within the target range of four to six per cent by the final three months of 2023. However, the data released by Statin on Monday could mean the country might be within range sooner than expected.

“The bank is in the process of updating our forecast based on the incoming data and we are cautiously optimistic that the general downward trend in inflation since April 2022 will continue,” the BOJ said.

It added, however, that it’s mindful that “there are still risks to inflation and that monetary policy must remain suitability calibrated”.

The BOJ has been crediting its monetary policy – a broad set of actions or tools that the bank has at its disposal – as a key driver in controlling Jamaica’s inflation.

Its measures over the past few months included the raising of policy interest rates that the BOJ pays on current account balances of deposit-taking institutions, including commercial banks, building societies and merchant banks; reducing the volume of the Jamaican dollar’s liquidity in the banking system; and stronger intervention to sell the US dollar in the foreign exchange market, which has helped to keep the Jamaican dollar stable and thereby limiting the inflationary effect of imported price increases.

So far, the BOJ has kept its policy interest rate, the rate offered to deposit taking institutions on overnight placements with BOJ, at 7.0 per cent, and continues to maintain relative stability in the foreign exchange market.

The last increase of 50 basis points on the policy rate was made in November 2022. Still, it’s the highest the country has had since 2011.

As a result, the rise in policy rate which started late 2021, has been a pain point for the country’s manufacturing and exporting community, with some slamming the central bank as being “borderline reckless” in its stance to continue increasing the policy rate last year.

Now, president of the Jamaica Manufacturers and Exporters Association, John Mahfood, is hopeful that the BOJ will see the continuous fall in inflation, as reported by Statin, as sufficient to lower policy rates at the upcoming policy decision announcement, which is set for May 19, 2023.

“The basic point is that inflation is trending in the right direction and so my hope is that the BOJ will start to realise factors outside of the Jamaican economy, like the price of oil and inflation in the US, are moving in a positive direction since last October,” Mahfood told Wednesday Business.

“And so it is my belief that given this positive trend, the BOJ can afford to start reducing interest rates so as not to slow down economic activity,” he added.

But so far, the BOJ’s only response to such optimism is that the Monetary Policy Committee, which assesses the economic environment and takes appropriate monetary policy decisions, “will at its next meeting take on board the new developments, updated projections and associated risk assessments”.

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