KINGSTON – Repeated successes in meeting the quantitative targets under the Standby Agreement with the International Monetary Fund (IMF) have resulted in increased confidence in the growth prospects of the economy.
This is reflected in the increased preference for Jamaica Dollar assets during the fiscal year, strong net international reserves (NIR) of US$2.17 billion and healthy gross international reserves of US$2.98 billion, representing 23.7 weeks of projected goods and services imports.
This was stated by Governor of the Bank of Jamaica, Bryan Wynter, during his address to the American Chamber of Commerce (AMCHAM) Forum, at the Knutsford Court Hotel in Kingston on March 25.
The Governor observed that in the context of the relatively stable market conditions during the year, the Bank lowered the interest rate on its 30-day certificate of deposit by 375 basis points to 6.75 per cent by the end of February 2011.
A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01 percent.
Mr. Wynter said that in addition, the Bank increased the pool of loan-able funds in the system by reducing the cash reserve requirement for both Jamaica dollar and foreign currency deposits. In addition, during the year, market-determined interest rates were also trending downwards at a faster pace than the Central Bank’s policy rate.
Speaking on the theme, ‘The Year Ahead – the View from the Central Bank’, Mr Wynter said that with the policies that were undertaken in 2010, Jamaica is being positioned firmly on a path for sustainable growth and development. “The on-going reforms in the financial sector will further increase its stability and soundness. Stable financial markets will reassure investors about the safety of their investments,” he said.
For fiscal year 2011/12, the Central Bank expects continued fiscal consolidation. “The Government has shown its commitment to this process by continuing to adjust expenditure where the revenues fall below budget. Additionally, the Government has demonstrated its commitment to fiscal transformation with the commencement of the phased implementation of the Central Treasury Management System, which will result in more efficient management of public sector finances,” he explained.
He also cited the Government’s divestment of public bodies that has been a drag on the budget. “With these developments, there is going to be a continuing decline in the fiscal deficit and the debt ratios. Lower demand for financing from the domestic market by the Government will continue to result in more and more resources being available for private sector credit,” the Governor said.
With respect to concerns about threats to the cost of living, Mr. Wynter pointed out that despite emerging challenges arising from international commodity prices, headline inflation continued its progress towards the achievement of the target for the fiscal year (2010/11) of 7.5 to 9.5 per cent.
“Headline inflation for the month of February was minus 0.4 per cent. With January’s decline of 0.2 per cent, inflation for the 11 months of the fiscal year-to-date is 6.7 per cent. It is now quite clear that the target for fiscal year 2010/11 is likely to be comfortably achieved,” he said.
The Governor attributed the weaker than projected performance of the economy in terms of Gross Domestic Product (GDP) growth last year to the adverse local and international weather conditions and the temporary fall-out that the economy experienced, particularly of the tourism sector, from the disturbance in West Kingston in May last year.
Looking forward to the next 12 months, the Central Bank expects that with lower interest rates and an abundance of credit resources, there will be an increase in investments in the productive sectors of the economy.
“In this regard, the Central Bank is projecting gradual recovery in the coming fiscal year with GDP growth expected to be in the range of 1.0 to 2.0 per cent,” the Governor said.
The initiatives being spearheaded by the Planning Institute of Jamaica (PIOJ) to identify and synchronise high impact projects that enhance inner city communities, improve the economic infrastructure and protect the environment, should result in a further acceleration of growth as they come on stream.
By ALLAN BROOKS, Senior PR Account Executive