Bank of Jamaica Quarterly Monetary Report – July to August 2018

Date: November 19, 2019 

Bank of Jamaica Quarterly Monetary Report:
For the period (July to August 2018)

The Bank of Jamaica (BOJ) held its Quarterly Monetary Policy Press Conference today, where the Governor, Mr. Brian Wynter, commented on the Bank of Jamaica’s decision to hold the policy interest rate unchanged at 2.00%.

According to the Governor, “this policy decision reflects the Bank’s assessment that inflation will rise close to the upper band of the 4.0% to 6.0% over the three quarters to June 2019 and will trend thereafter to middle the target range.” He highlighted that the Bank views current monetary conditions as appropriate to support inflation returning to the centre of the target over the medium term hence supporting the decision to maintain the policy rate at 2%. In addition, the Banks sees “an encouraging pick-up in credit extended by deposit-taking institutions to the private sector, and thus hopes that maintaining the policy rate will continue to encourage increased economic activity and job creations financed by strong growth in credit to the private sector.”

Bank of Jamaica’s next monetary policy announcement is scheduled for Thursday, 20 December 2018.

Inflation Performance relative to the target and revised outlook

Notably, Mr. Wynter indicated that inflation is back on target relative to their last quarterly briefing where inflation had fallen below the 4.0% – 6.0% target for the period March to June 2018. Inflation rate year to date is 3.5%, while the point-to-point rate (October 2017 – October 2018) and fiscal year 2018/ 2019 was 4.7% and 3.8% respectively, higher than the June’s inflationary rate of  -0.3%, and point-to-point rate (June 2017 – June 2018) and fiscal year 2018/ 2019 of 2.8% and 0.0% respectively. This uptick was largely attributable to the higher (normalized) prices for agricultural food crops and increased electricity cots.

Over the next four quarters, Mr. Wynter indicated “inflation is projected to fall to 4.0% at December 2018, accelerate to about 4.7% at March 2019 and then rise further towards the upper limit of the target by June 2019. Inflation is then projected to fall close the lower limit of the target in the September and December 2019 quarters and then gradually trend towards 5.0% thereafter.” Notably, BOJ’s forecast inflation to converge to 5.0% for the medium-term, supported by continued improvements in domestic demand as GDP growth strengthens and the labour market improves.

Risk to Forecast

The Banks assets inflation to be generally balanced but however outlined the downside and upside risk that would cause inflation to deviate from projections.

Downside Risks

The main downside risk that would result in inflation being lower than forecasted includes:

  • A worsening in domestic demand conditions associated with lower –than-anticipated US GDP growth in the contest of escalating trade tensions.
  • Commodity prices (crude oil prices in particular) being lower than expected

Upside Risks

The main upside risk that would result in inflation being higher than forecasted are as follows:

  • The current accommodative monetary conditions could spur an even faster rise in domestic deman
  • Adverse weather conditions
  • Second-round effects of administered price changes

Nonetheless, Mr. Wynter highlighted the prospects for the Jamaican economy are positive as the Bank projects continued recovery in economic activity. This forecasted growth reflects the Bank’s assessment of “an improvement in net external demand, buoyed by increased production in mining and quarrying and expansion in construction and tourism activities.” In addition, unemployment is at an all-time low (8.4% as at July 2018) and BOJ sees further improvements to labour market conditions and employment over the next two years. However, though GDP is improving, they also project this will somewhat trend below potential output.

Foreign Exchange Market

The Bank views that the market is more than adequately supplied with US dollars and thus has recently announced its intention to buy US$10.0 million on December 5, 2018. He highlighted, “Purchases by the Bank are used to meet the foreign exchange requirements of the government and public sector bodies, such as for debt service and to build reserves. The Bank also purchased in circumstances where it is necessary in order to maintain orderly conditions in the foreign exchange market.”

In concluding, Mr. Wynter ended on the note that, “Jamaica’s macroeconomic indicators are positive. Inflation is low and on target and international reserves are at healthy level. The current account of the balance of payments, while projected to widen, should remain at sustainable levels. Market interest rates are at record lows and fiscal performance is strong.”


Disclaimer: Analyst Certification -The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.

Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.