Bank of Jamaica Quarterly Monetary Report – October to December 2017

February 22, 2018

Bank of Jamaica Quarterly Monetary Report: For the period (October to December 2017)

For the review period October to December 2017, Mr. Brain Wynter, The Governor of the Bank of Jamaica (BOJ), indicated that “The recovery in the Jamaican economy has been sluggish, though, and the Bank expects that GDP will remain below the economy’s capacity in the near term.” He however indicated that the Bank expects inflation for the next eight quarters to continue to track around the lower half of the 4.0% to 6.0% target before rising around 5.0%. He further added, “The Bank believes that this, together with continued fiscal consolidation and low inflation expectations anchored around the Bank’s target, calls for a more accommodative monetary policy stance”.

According to Governor, the assessment of inflation has influenced The Bank of Jamaica to announce their first monetary policy under their new proposed schedule. Here, BOJ announced the decision on February 20, 2018, to lower the policy rate by 25 basis points to 2.75%.  “A decision to reduce the policy rate is consistent with a view that there is a relatively low risk of future inflation rising above the target. In some circumstances, it may imply that underlying conditions in the economy or in the labour market are weak. A decision to increase the policy rate most likely means that the Bank is acting to reduce future inflation pressures. A decision to keep rates unchanged signals a general comfort by the Bank that interest rates are consistent with future inflation remaining within target”, Mr. Wynter noted.

Bank of Jamaica’s monetary policy announcement dates for 2018 are as follows:
· Tuesday, 20 February 2018
· Tuesday, 27 March 2018
· Wednesday, 16 May 2018
· Wednesday, 27 June 2018
· Tuesday, 28 August 2018
· Tuesday, 02 October 2018
· Friday, 16 November 2018
· Thursday, 20 December 2018

Mr. Wynter emphasised that the, “Forecasting and Policy Assessment System (FPAS) has culminated in the commitment to fixing the dates in the decision-making calendar for the full year ahead and disclosing to the public each decision promptly, along with the rationale for the decision, even when the decision is to leave the policy rate unchanged” He further provided an explanation of FPAS and its outcomes. He noted, “Under FPAS, the Bank undertakes a comprehensive assessment of current and projected economic conditions, including, most importantly, the outlook for inflation. The end result of each assessment is a monetary policy decision that normally will be to (i) increase the policy rate, (ii) maintain the policy rate (iii) reduce the policy rate.”

Mr. Wynter highlighted that the above decisions are intended to, “guide the interest rates set by commercial banks and other financial institutions that affect the spending, investment and saving decisions on households, firms and farms that, in turn, influence the rate of inflation.” Notably, it was highlighted that the impact of monetary policy changes is usually first seen in money market rates before spreading outwards to other interest rates such as those on bank loans and deposits. Interestingly, Mr. Wayne Robinson, Deputy Governor of BOJ, highlighted that commercial banks generally tend to have a three months response rate to the monetary policy changes.

The final point Mr. Wynter elaborated on was the foreign exchange market, where he stated that, “the market continues to perform as we had expected,” as the country transitions to a modern competitive foreign exchange market. The foreign exchange market has recently experienced more two-way movements with BOJ expects this behaviour to continue. “The exchange rate appreciated by 3.8% during the review quarter, a trend that continued the first week of January. Since then, the market entered a new phase with a reversal of the previous appreciating trend,” Mr. Wynter noted.

BOJ anticipates that this new reality should place banks and other financial institutions in a better position to offer reasonably priced insurance or hedging tools to customers who choose not to or cannot withstand the short term risks associated by this two-way movement in the foreign exchange rate. The Bank hopes that investors will now have more incentives to place their money into the Jamaican dollar-denominated, growth oriented investments as this two-way movement removes the assurance that one cannot simply lose by simply buying and holding foreign exchange.

The Governor also highlighted that, “B-FXITT remain in place with the current four-week ahead schedule, grounded on the market intelligence received by the Bank, including a total of US $40 million to be sold to the Market next month.”

In concluding, Mr. Wynter ended on the note that, “Bank of Jamaica continues to implement policies and procedures to improve the operations of the financial markets and to improve the way in which it interacts with these markets. The goal is to improve macroeconomic stability and resilience in Jamaica as our contributions to sustain growth and job creation.”