The Bank of Jamaica (BoJ) is predicting that the country will achieve single-digit inflation in 2010/11, following gains made in the final quarter of 2009/10, which ended in March.
At the BoJ’s quarterly press briefing Wednesday (May 12), in downtown Kingston, the Bank’s Governor, Brian Wynter, noted that there were encouraging signs in the financial markets, as investor anxieties about the Jamaica Debt Exchange (JDX) morphed into a more positive perception of Jamaica’s medium-term economic prospects.
“There was a notable absence of capital flight during and after the transaction, and financial institutions remained liquid and adequately capitalised. The improved outlook also manifested in stability in the exchange rate and declines in market interest rates, particularly in the post-JDX period,” he informed.
Governor of the Bank of Jamaica, Brian Wynter (right), and Senior Deputy Governor of the Bank, Audrey Anderson, conversing ahead of the Bank’s quarterly press briefing for March 2009/10, at the Bank in downtown Kingston, Wednesday (May 12).
The BoJ Governor reported that following a marginal decrease in the previous quarter, the exchange rate appreciated by 0.1 per cent for the review period. He said most of the appreciation occurred in March, influenced by net private and official capital inflows and, to a lesser extent, tourism receipts.
Mr. Wynter added that the reduction in the foreign currency cash reserve requirements by 2.0 per cent on March 1, further served to augment the supply of foreign exchange, especially given the reduction in imports.
In addition to the relatively stable foreign exchange market, he said there was also a continued downward trend in interest rates. This was indicated by a 631 basis point fall in the benchmark 180-day Treasury Bill yield during the quarter.
The Central Bank Governor also said that the Consumer Price Index (CPI) rose by 4.1 per cent during the March, 2010 quarter and that, consequent on this outturn, inflation for 2009/10 was 13.3 per cent. Noting that it was slightly higher than the 12.4 per cent for 2008/09, he said it was still within the Bank’s forecast range of 11.5 to 13.5 per cent.
Governor of the Bank of Jamaica, Brian Wynter, gives a breakdown of the Bank’s Quarterly Monetary Policy Report for the March 2009/10 quarter, during a press conference at the central bank, Wednesday (May 12).
He explained that the acceleration in inflation in the review period was largely influenced by the tax measures which took effect in January, and the increase in public transportation costs that effected in February.
Turning to the real sectors of the economy, Mr. Wynter said economic activity was buoyed by tourism and agriculture, which partially offset contractions in mining and quarrying, transport, storage and communication and the construction sectors. However, he said overall economic activity remained weak and real Gross Domestic Product was estimated to have declined in the range of one to two per cent in the review quarter. This resulted in an overall two to three per cent estimated decline for fiscal year 2009/10.
Looking ahead though, Governor Wynter said the Bank remains “cautiously optimistic” that the “buds” of economic recovery will begin to be seen in the latter part of the current fiscal year. The prospects for mining are encouraging, while growth in the tourism and agriculture sectors is expected to continue.
He said the Bank was anticipating a marginal contraction in the second quarter of 2010/11, which begins in June, and very moderate growth in the range of up to one per cent for this fiscal year.
Headline inflation for the June 2010 quarter is expected to decelerate to a range of 2.5 to 3.5 per cent, while the projection for inflation for this financial year remains in the targeted range of 7.5 per cent to 9.5 per cent.
Mr. Wynter said the projected deceleration in inflation is underpinned by low consumer demand, and a stable exchange rate which is expected to lessen the impact of an anticipated rise in oil prices over the year.
In addition, the BoJ Governor stated that the Bank’s net domestic assets (NDA) was comfortably within the programme target at the end of March, and that the net international reserves (NIR) at the end of March stood at US$1.7 billion, US$695.2 million above the target.
“Over the past few months, we have seen the introduction of a bold programme of fundamental reforms that has required sacrifices by all stakeholders..The endgame is the achievement of sustainable growth and improvement in the living standards of all Jamaicans,” he argued.