Bank of Jamaica Governor, Brian Wynter, says the economy recorded positive developments during the July to September quarter of the current fiscal year.
These developments, he points out, included a decline in the projected inflation rate, a trending down of interest rates, a relatively stable foreign exchange market and substantial increases in the net international reserves, underpinned by continuing fiscal consolidation.
Speaking at the BoJ’s quarterly briefing at the bank’s auditorium, downtown Kingston, on Wednesday (November 10), Mr. Wynter pointed out that “headline” inflation for the period was 1.3 per cent, lower than the 1.5 to 2.5 per cent range predicted in August.
He also stated that the out-turn for the quarter was significantly lower than the 2.6 per cent recorded in June, as well as the 3.8 per cent average inflation rate for the previous five September quarters.
Bank of Jamaica Governor, Brian Wynter (left), fielding questions during the BoJ’s quarterly briefing at the bank’s auditorium, downtown Kingston, on Wednesday (November 10). Looking on are Deputy Governors, Livingstone Morrison (centre) and Rudolph Muir.
“The lower than expected inflation was against the background of a decline in energy prices, relative stability in the exchange rate and continued weak consumer demand. Partly offsetting the impact of the lower energy prices, however, were increases in the prices of some agricultural products, particularly in July. This mainly reflected the lagged impact, on food prices, of drought conditions from late 2009 to mid 2010,” he explained.
Mr. Wynter said, however, that the inflation rate is projected to increase to between two and three per cent for the October to December quarter.
This projection is largely expected to be influenced by the above average rainfall resulting from the passage of Tropical Storm Nicole, at the end of September, which caused severe damage to crops and the road network, he said. In this context, there is expected to be some increase in the prices of select agricultural commodities, particularly in November and December.
“However, the Government has announced plans to import certain food items, which could partly mitigate some of these increases. In addition, the recent increases in the price of oil, corn and wheat on the international market are expected to continue in this quarter,” he stated.
Bank of Jamaica Governor, Brian Wynter (right), conferring with Deputy Governors, Audrey Anderson (left) and Myrtle Halsall, during the BoJ’s quarterly briefing at the bank’s auditorium, downtown Kingston, on Wednesday (November 10).
Regarding the financial market, Mr. Wynter said that, despite the “emergence” of some “demand pressures” during September, the foreign exchange market was relatively stable for the quarter.
The BoJ’s foreign exchange trading desk was fairly “active” in the market. He informed that, invariably, the Bank had to intervene in the market to purchase and sell US dollars, in order to “maintain the smooth trading conditions in the market”, consistent with its mandate of maintaining stable market conditions.
“By the end of the quarter, we had sold, on a net basis, US$20 million, but behind that were purchases of US$63 million and sales of US$83 million. So (it was) a fairly active quarter of the Bank’s trading desk, perhaps reflecting some of the uncertainties that arose out of the economic developments in the June quarter, and leading into the September quarter,” he advised.
Mr. Wynter said the Net International Reserves (NIR) increased by US$177.9 million, due mainly to a US$200 million Inter-American Development Bank (IDB) loan to the government. This pushed the NIR stock, at the end of September, to US$1.91 billion which “substantially” exceeded the end of September target under the International Monetary Fund’s (IMF) standby arrangement.
At that date, the Governor pointed out, gross reserves amounted to US$2.79 billion, representing 20.5 weeks of projected goods and services imports, which compared favourably with the international benchmark of 12 weeks.
The Central Bank Governor noted that, within the context of “relatively buoyant” Jamaican Dollar liquidity conditions experienced during the period under review, foreign exchange market stability and improved investor sentiment, market-determined interest rates continued to decline in the September quarter.
Mr. Wynter said economic activity in the real sector is estimated to have remained “weak”, with real Gross Domestic Product (GDP) contracting in the range of zero to one per cent, relative to the sharp decline in the June quarter. He noted that several areas, including agriculture, forestry and fishing, manufacturing, transport storage and communication, and financing and insurance services, recorded declines. Mining and quarrying was the sole area recording growth.
The Governor said BoJ projections indicate real GDP marginal contraction or expansion in the December quarter, ranging between -0.5 and 0.5 per cent. He pointed out that, save for mining and quarrying and hotels and restaurants, most industries are projected to contract.
The Governor said recent adverse weather conditions have resulted in the BoJ revising its projection of the economy’s performance during the current fiscal year. Noting that the economy is projected to contract marginally, ranging between 0 to one per cent, this is largely due to the extent of the fall-out in the June quarter, and the impact of Tropical Storm Nicole in the December quarter, he said.
He added that the forecast for a marginal decline is contingent on growth being recorded in the March 2011 quarter. Domestic inflation for the remainder of the current fiscal year is expected to be at the upper end of the revised forecast range of six to eight per cent, within the original 7.5 to 9.5 per cent target.
This projection, he explained, is underpinned by continued low consumer demand, a stable exchange rate and continued moderation in inflation expectations.