Bank of Jamaica Quarterly Monetary Policy Report Press Briefing

April – June 2017

For the review period of April to June 2017 the Bank of Jamaica (BOJ) indicated that the Bank will move forward with its accommodative monetary policy stance. This policy according to Governor Brian Wynter, reflects the run of very low inflation over the last fiscal year. The Bank further predicts that its inflation target for the current fiscal year will be met. In addition to that BOJ transitioned its policy rate to a paid overnight deposits from the rate paid on the 30-day certificates of deposit. The bank highlighted that this new policy is a refinement of the existing operations and not a change in monetary policy. Further to that the policy shift is expected improve the monetary transmission mechanism, and over time allow lower market interest rates; particularly lending rates.

Moving on to lending rate, Mr Wynter indicated that new loan rates have declined over the past year and should fall further. According to the Bank’s Survey of Credit Conditions, rates on new loans offered to businesses fell by more 2.5% points over the year to March 2017. Notwithstanding the fall in interest rate, Mr. Wynter expressed concern that it is still too high. Lending rate for March is approximately 7.5%. This rate preclude businesses that cannot generate a real rate of return above this level from accessing loans from financial institution, Mr Wynter asserts. According to the Governor, one major factor that affected interest rates in Jamaica’s modern history was government crowding out, which has been reversed in recent years. Continued reform and policy measures should ensure that the crowding out effect will not re-emerge the Governor noted.

Data on the commercial bank credit to the private sector indicated that credit grew by 11% excluding the new entrant to the market and 31.1% when the new entrant is included, while growth in business and personal loans grew by 13.6% and 12.2% respectively.

Mr. Wynter indicated that inflation rate for June 2017 was 4.4% and is on track to fall within the Bank’s target range of 4% to 6% for 2017/18. The inflation rate the increase in agricultural prices due to flood rains in May 2017 and the changes in taxation on selective goods and services. Mr Wynter anticipates that the effect on foods prices caused by the May rains will be felted for a few more months before normalizing before the end of the fiscal year.

With regards to economic development, the Governor pointed to GDP which grew by 0.1% for the March 2017 quarter, bringing growth to 1.3% for the fiscal year 2016/17. He also reported that unemployment at April 2017 fell to 12.2% from 13.7% at April 2016. This growth reflected strong increases in employment in real estate renting and Business Activates. The current account deficit of the balance of payment for March 2017 quarter was 0.6%. This represents a decline of 1.5%, compared to a surplus in March 2016, this was due to increases in oil prices.  The bank estimates that the current account deficit for 2016/17 will be 2.5% of GDP, which is 19% above the figure for the previous fiscal year. By adjusting for imports financed by FDI the current account surplus was 6.1% of GDP.

Finally, Mr Wynter addressed the new foreign exchange trading framework. The new frame work called B-FXITT is a tool for the sale and purchase by the bank of foreign exchange. Mr Wynter indicated that the bank has performed three standard sale operations, and “the new tool appears to be settling down well.” The bank is now in the process of designing the purchase side of B-FXITT and will announce the date of implementation at the appropriate time.




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