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Economist urges BOJ to rethink rate hikes

Published:Sunday 12:06 AM

Samuel Braithwaite, a lecturer in the Department of Economics at the Mona campus of the University of the West Indies, is urging a rethink of the Bank of Jamaica’s, BOJ, policy rate increases.

This comes as the BOJ further increased its policy rate by another half-point.

Braithwaite says while it is too early to understand the full implications of the adjustments, the constant ratcheting-up by more than six percentage points in one year, has been too much, too fast.

“I understand why with year-on-year inflation running at about 10 per cent or so they have started to increase the policy rate but my problem is that every time they meet they’re just turning the dial,” Braithwaite charged.

He was speaking to the Financial Gleaner on the margins of the annual investor briefing of Sterling Investments Limited at the Spanish Court Hotel on Thursday. The Bank of Jamaica had, only hours before, tacked on 50 basis points to its policy interest rate bringing it to 6.5 per cent, effective Friday. The policy rate is a tool used by the central bank to signal the direction of market rates, and it typically affects the pricing of loans, mortgages and bonds, as well as the interest paid on deposits.

The BOJ’s current goal is monetary tightening in order to corral inflation, which at 10.2 per cent is running two times ahead of the target range of four to six per cent.

Braithwaite said the full effect of the rate increases may not become apparent until another year or so.

He adds that rather than be aggressive with policy rate increases, the BOJ should have been more cautious and act more in line with International Monetary Fund, IMF, guidelines.

“So for me, I would have pushed that rate to a neutral position. According to the IMF that position is about four per cent,” he said.

The economist projects that the policy rate could still go higher.

“For the BOJ, the neutral position is a range between 2.6 per cent and 7.6 per cent. It is therefore possible, before the year is through, for the policy rate to go to seven per cent or 7.5 per cent, because, for them, they are still within that neutral band,” Braithwaite said.

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