Bank of Jamaica Quarterly Monetary Policy Report Press Briefing
October to December 2016
CROWDING OUT HAS ENDED
The press briefing commenced with the Mr. Bryan Wynter, Governor of The Bank of Jamaica (BOJ), proclaiming that the era of government crowding effect has ended and the country is now in a “crowding in” phase. The crowding out effect occurs when excessive borrowing by government limit the flow of credit and financial resources to the private sector, which hinders private sector investment. The Governor also claimed that by virtue of this crowing in process, “we are now witnessing a long overdue correction.” The governor further added that, “smart debt management and fiscal discipline have resulted in a fall in the debt to GDP ratio to 122% at March 2016.” As a result, the country has experienced a significant improvement in its sovereign debt rating by Fitch and sovereign risk premiums trending to all-time lows according to Mr. Wynter.
On the macroeconomic front, the governor pointed out that the crowding in effects has led to a growth of 14.8% in commercial bank credit to the private sector, relative to a growth of 9.5% the year before. As a result, “Loans had a real growth rate of 12.8% for 2016 compared to 5.7% in 2015,” according to Mr Wynter.
On the issue of economic growth, Mr Wynter asserted that the significant increase in credit has led to eight consecutive quarters of expansion in GDP, with the metric growing at 1% to2% in the December 2016 quarter. This has spurred an uptick in the labour market. The Governor pointed to the labour force survey by the Statistical Institute of Jamaica, which showed that employment has trended down from 13.5% to 12.9% for October and an annual growth in employment of 3%.
The Governor indicated he is focused on the role the Bank of Jamaica (BOJ) will play in ensuring that Jamaica meets its ‘5 in 4’ objective; 5% GDP growth in 4 years. According to Mr Wynter, “the Banks’s role is to maintain macroeconomic stability.” To that end the governor noted the structural reforms aimed at removing impediments to growth which the Bank has passed. Chief among them is the lowering of the capital risk-weighting for bank loans guaranteed by the Development Bank of Jamaica. This bank is also expected to raise the cash reserve requirement for commercial banks on foreign currency deposits from 12% to 14% in March 2017.
Mr. Wynter noted that inflation for the month of January was 0.4%, which brings the 12-month inflation to 2.6%, up from the 1.7% as at December 2016. This uptick in inflation was “entirely expected” and presents no change to the current monetary conditions. In addition, the Bank of Jamaica (BOJ) projects inflation to range between 4% and 6% for the FY2017/18, this forecast is underpinned by oil prices which the Bank expects to remain below US$60 per barrel on average.
On the topic of the exchange rate Mr. Wynter reiterated his view that the Jamaica dollar is fairly valued, thus the exchange rate should remain stable.  He stressed that the fluctuation in the exchange rate for the year 2016, highlight the need for, “market participants to pay attention to the economic data that is reported instead of relying on the rules of thumb.”  
Inclosing, Mr Wynter indicated that an IMF team is currently in Jamaica to conduct the first review under the precautionary Stand-Bay agreement and “it’s the assessments of the Bank that all quantitative performance criteria and structural benchmarks have been met.” On the completion of the assessment the IMF is expected to allocate approximately US$170 million to the sum available for drawdown when needed.