Date: July 26 ,2018
As Jamaica aims to maintain fiscal discipline and macroeconomic stability, recently appointed Minister of Finance and Public Services, Honourable Dr. Nigel Clarke, announced the implementation of Jamaica’s second pillar, the modernisation of the Bank of Jamaica (BOJ).
He highlighted today that this particular decision of institutional reform stemmed from the Government’s interest to remain on the path of low, stable and predictable inflation rates.
He indicated this is of great importance to the Jamaican economy, as high inflation is synonymous with great instability, works against investments, retards and reserves development and impoverishes people. As such, he highlighted that price stability should be kept in line with that of the economy’s targeted inflationary rates.
Notably, Jamaica’s monetary policy is responsible for implementing these targeted inflation rates (movements in the level of interest rates, as well as the level of money supply) which is in the purview of the Central Bank. As such, if Jamaica wants to maintain low, stable and predictable inflationary rates and in extension macroeconomic stability, “we have to ensure the governance and institutional foundations of our Central Bank are suited to this purpose”, Minister Clarke added.
Currently, the Central Bank’s mandate as it relates to monetary policy, “Consist of multiple goals some of which are in conflict with others. As a result market participants and investors suffer from a lack of clarity about the Central Bank.” In line with the Ministry of Finance’s journey on economic independence, the Government has thus announced Jamaica’s second pillar, the independence of the Central Bank.
These reforms to be tabled by October 2018, includes a revision of the Central Bank’s mandate in order to establish a clear and prioritised mandate of price stability as the goal of monetary policy. Going forward, the principal monetary policy goal of the Central Bank will now be to achieve an inflation target and all other tools and indicators will be subordinated to this goal.
Arguably, Minister Clarke acknowledged that previously, Jamaica’s monetary policy essentially surround solely the Government finances. He indicated that past interest rates had little to no correlation with inflationary rates but more so to ensure that existing Governments could finance themselves. As such, enabling an independent Central Bank will delink such known political pressures, as the Ministry of Finance will no longer have the ability to give directions on monetary policies.
Other measures involved to strengthen the independence of the Central Bank include:
- Tenure of Board Members is long enough for individual independence of directors and the development of sufficient experience in capabilities to discharge the functions of accountability successfully.
- Board appointments are staggered so that while board vacancies are available no single administration in a single term can change the entire board.
The modernisation of the Central Bank will include amendments to the:
- Bank of Jamaica’s Act
- Banking Services Act
- Public Bodies Management Accountability Act
- And also, enable the issuance of new Governance regulations for the Bank of Jamaica
Reforming the Central Bank will not only allow for strong systems of accountability and transparency but the Central Bank’s Governor will now be required to submit to parliament and to the public regular policy update statements in particularly on the monetary policy. In addition, Monetary Policy Committee meetings minutes will also be disclosed.
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