BOJ Focused on Maintaining Low Inflation

Date: August 29, 2018

The Bank of Jamaica (BOJ) held its Quarterly Monetary Policy Press Conference today, where the Governor, Mr. Brian Wynter, spoke on the Bank’s monetary policy decision in the context of the Banks outlook for inflation and the overall economy in the current quarter against the background of the economy’s performance for the April to June 2018 quarter.

Mr. Wynter highlighted that, “The annual inflation as at June 2018 was 2.8 percent, which was below the inflation target range of 4 percent to 6 percent. He stated that the lower than targeted inflation for the quarter was due to higher than anticipated decline in food prices from the initial period of 2018 and a lower than expected imported inflation associated with strengthening domestic currency. Additionally, weaker domestic demand conditions contributed to the lower than expected inflationary range, which was largely associated with the impact of continued fiscal consolidation.”

The risks to inflation over the next eight quarters are balanced as per the Governor. Whereas, worse than anticipated weather conditions (severe drought/hurricane), higher domestic demand conditions as well as faster than anticipated exchange rate depreciation remain upside risks. The risks to international commodity prices, particularly oil, are skewed to the downside.

“BOJ, over the June 2018 quarter, reinforced its accommodative monetary policy stance by reducing the rate offered by overnight deposits by 75 basis points to 2.00 per cent,” as mentioned by the Governor. Furthermore, the loosening of the policy stance was aimed at allowing greater credit expansion and increased pace in the country’s GDP growth which will support inflation returning to the 4 percent to 6 percent range.

The economy continues to show signs of moderate recovery supported by economic reforms, improving institutional capacity and policy effectiveness. Real GDP is estimated to have grown in the range of 1 percent to 2 percent in the June 2018 quarter from 0.1 percent in the prior comparable quarter. This growth reflected an improvement in net external demand, augmented by increases in investment and growth in private consumption.

The Governor also stated that, “The domestic economy is projected to benefit from increased remittance inflows and tourism receipts as the US economy is expected to grow faster than its potential over the next two years. This overheating of the US economy is likely to result in a rise in US inflation over the medium-term, with some pass through to Jamaica’s inflation rate.”

Mr. Wynter concluded by stating that, “Over the next eight quarters, the projected growth in the monetary aggregates has been revised downwards. In this context, the monetary aggregates are not expected to pose a threat to the attainment of the inflation target. Monetary conditions during the June 2018 quarter were mildly accommodative, in the context of an undervalued exchange rate, supported by negative real rates. The forecast suggests continued accommodative monetary conditions, to guide inflation , even if there are no further adjustments to monetary policy.”



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.