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Governor of the Bank of Jamaica (BoJ), Derick Latibeaudiere, has said that the bank continued to pursue a tight monetary policy stance in the last quarter of the financial year, in order to maintain stability in the market.
Speaking at the BoJ’s quarterly press briefing, on May 20, Mr. Latibeaudiere said during the March quarter, the bank acted swiftly to remove excess Jamaican dollar liquidity from the market, which would have fuelled demand for foreign exchange. He explained that this was achieved by increasing the cash reserve requirements of deposit-taking institutions, by an additional three percentage points.
The BoJ also sold foreign currency to the market and instituted a foreign exchange facility for public sector entities in February. Both these facilities served to ease demand pressures in the foreign exchange market. “Under the foreign exchange facility, commercial banks and cambios have agreed to surrender to the Bank of Jamaica an additional 15 per cent and 10 per cent, respectively, of US dollar purchases,” he pointed out.
The bank’s actions have resulted in the Net International Reserves (NIR) stabilising since the end of March, currently at the figure of US$1.623 billion. At the end of March, gross reserves amounted to US$1.663 billion, representing approximately 13 weeks of imports of goods and services.
Mr. Latibeaudiere pointed out that the pace of depreciation in the Jamaican dollar slowed toward the end of the quarter, ending at a 9.4 per cent decline, after a sharp decline of 6.5 per cent in January. Total depreciation for the year was 20 per cent as a result of the escalation of the global financial crisis.
Headline inflation for the March quarter stood at 1.3 per cent, which was slightly lower than the bank’s initial expectation of 1.5 to 2.5 per cent. Mr. Latibeaudiere also disclosed that the inflation rate for fiscal year 2008/2009 was 12.4 per cent, which was significantly lower than the 19.9 per cent for the previous year.
The BoJ is hopeful that the 2009/2010 budget will result in some upward impetus to domestic prices and also constrain domestic aggregate demand. The BoJ Governor is projecting that there will be growth in several sectors of the economy this fiscal year, especially in Agriculture, Forestry, Fishing, Electricity and Water.
Mr. Latibeaudiere also sought to reassure that Jamaica “has been spared some of the handicaps that have complicated the restoration of normality in the financial markets in the United States of America and elsewhere.” He said that if Jamaica continues to maintain a sound regulatory framework, it will enhance the country’s ability to rebound strongly when the world economy recovers.