Bank of Jamaica Quarterly Monetary Report – January to March 2018

Date: May 21, 2018

Bank of Jamaica Quarterly Monetary Report for the period (January to March 2018)

The Bank of Jamaica held their Quarterly Monetary Policy Report Press Conference today, as Governor Brian Wynter highlighted the third monetary policy decision for the year was to lower the policy rate (the interest rate paid on overnight deposits at Bank of Jamaica) by 25 basis points to 2.50%.” The change in the monetary policy reflects the Bank’s assessment of inflation falling below the lower end of the Bank’s target range of 4.0% to 6.0% over the next three quarters before moving up to the centre of the target in the March 2019 quarter. The governor noted, “The Bank’s policy actions are forward-looking and was forecasted that the risk of inflation could be close to the lower end of the target range in March 2018 quarter and since the switch to the overnight interest rate as the policy rate in July 2017, BOJ has lowered the policy rate five times by a total of 125 basis points.” It is of concern that despite the adjustments, this still has not been enough to stimulate economic activity to the levels within the inflation target. With a conservative projected increase in inflation within the short term, there may still be further and more robust downward adjustments with regards to the policy rate to overcome the “sluggishness” of the ongoing economic recovery.

“Inflation at April was 3.2%, below the proposed target rate and as such was lower than 3.9% at March 2018 and the 5.2% as a December 2018,” Mr. Wynter mentioned. He noted that, “Inflation was lower than the target mainly because of the sharper-than-anticipated decline in agriculture prices since January 2018, reflecting the recovery in agriculture output. The lower inflation was also due to an unusually sharp decline in electricity costs in April.” He went on to further state the projections for inflation for the upcoming fiscal year. He added, “The Bank’s projected path for inflation over the next fiscal year is slightly lower than the one presented at our press conference in February. This now includes the impact in the decline in agricultural food prices but also the impact of the upturn in crude oil prices since July last year and the upturn in the prices of grains as well.”

The Governor went on to state, “The economy has continued to show signs of a gradual but sluggish recovery. For the March 2018 quarter, output is estimated to have expanded in real terms by 1% to 2%, above 0.1% recorded in March 2017 quarter and above the 1.1% expansion in the December 2017 quarter. The estimate for the March 2018 quarter reflects some growth in net exports.” Mr. Wynter further added, “With the improving economy, conditions in the labour market have improved markedly while not yet presenting a major risk to inflation.” The unemployment rate for January 2018 was 9.6%, the lowest since the last decade and was impacted by the additional 22,000 new jobs. Notably, Bank expects a modest steady increase in the growth of the economy for the next two years. “However, inflation pressures from spending in the economy are expected to remain contained as GDP growth projected at 1.5% to 2.5% per quarter, continues to trend below potential. The forecast also assumes that domestic demand will remain restrained by continued fiscal consolidation and inflation expectations will remain low and anchored at the lower end of the Bank’s target,” said Mr. Wynter. Along with expected growth in GDP, labour market factors are predicted to improve over the next two years, which may, at some point, support wage-related inflation in Jamaica if labour productivity does not get better.

In addition, the Governor elaborated on the risk of inflation and suggested that, “The risk of inflation is skewed to the downside; with the major downside risk being the weaker-than-anticipated domestic demand conditions and slower-than-anticipated global economic growth. The latter risk is associated with the nascent geo-political tensions and protectionist policies that have surfaced over the last two quarters. There is a upside risk to inflation from higher-than-projected crude oil prices, but our current assessment is that crude oil prices will fall as geo-political uncertainties wane and the impact of excess supplies prevails in the market.” The adversity of weather conditions may cause domestic agricultural prices to grow faster than predicted.

It was highlighted that the preparations of the buy operations that were mentioned at the last press conference commenced on April 11, 2018. The comments made by the governor indicated that, “foreign exchange market has adjusted well to the new method of interaction with the BOJ; the market is displaying increased foreign currency volumes with more trading being observed among the authorised dealers and cambios.”

In concluding Mr. Wynter ended on the note of, “Jamaica’s macro-economic indicators continue to improve. Inflation is low, Net International reserves are climbing and the current account of the balance of payments, while projected to widen, will remain at sustainable levels. Market interest rates are at their lowest and continues to fall while fiscal performance remains strong. In the context of the benign outlook for inflation, BOJ will continue to have an accommodative policy stance aimed at steering inflation towards the Bank’s target of 4.0% to 6.0%.


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