Economy Doing Well – BOJ Governor

Bank of Jamaica (BOJ) Governor, Richard Byles, says the economy has been “doing well”, largely based on the latest growth and employment out-turns.

Speaking during the BOJ’s digital quarterly media briefing on Tuesday (May 24), Mr. Byles referenced data from the Statistical Institute of Jamaica (STATIN), showing that the economy grew by 6.7 per cent during the October to December 2021 quarter.

He said this out-turn was indicative of improving economic activity, noting that the level of growth recorded during the period was faster than that for July to September 2021.

“For the year 2021/22, the Bank expects real GDP (gross domestic product) growth to be in the range of seven to 10 per cent,” the Governor said.

Mr. Byles further indicated that growth in 2022/23 is projected to be in the range of two to four per cent.

“The Bank expects that this GDP growth will continue to be driven by the services industry, particularly tourism. The forecast also assumes that production at one of Jamaica’s main alumina plants [JAMALCO], which had been temporarily closed, will resume by June 2022,” he said.

Mr. Byles highlighted the fall in the unemployment rate to a historic low of 6.2 per cent, based on STATIN’s January 2022 labour force survey, as “an exceptional performance, by any measure”.

He noted, however, that the economy “is not yet out of the woods”, citing the impact of the Ukraine-Russia conflict and the emergence of a firth wave of the coronavirus (COVID-19) pandemic.

He pointed out that conflict “has fueled further significant increases in international commodity prices and has contributed to a substantial rise in global and domestic inflation”.

With inflation tracking above the upper end of the Bank’s four to six per cent target, Mr. Byles said the BOJ is cautiously optimistic that there could be some respite in sight, “provided that geopolitical tensions [between Ukraine and Russia] do not escalate”.

The rate of inflation for the 12-month period ending April 2022 was 11.8 per cent.

The Governor noted that while already high international commodity prices are expected to increase further over the next few months, the global consensus forecast is for a fall during the second half of 2022, influencing a decline in inflation among the country’s trading partners.

“Jamaica’s inflation is expected to follow a similar pattern, rising in May and June, but falling in the second half of the year. After carefully considering all the risks around this outlook, it is our view that the Bank of Jamaica should continue its programme of monetary tightening until we have seen the projected turn in inflation materialise,” he noted.

The Bank’s Monetary Policy Committee voted earlier this month to increase the policy rate by a further 50 basis points, to five per cent, effective May 20, 2022.

Mr. Byles said this decision was based on the BOJ’s forecast for further increases in inflation over the next two months, before the rate begins to decline.

“This forecast is, however, conditional on our assumption that tensions between Russia and Ukraine do not escalate and inflation among Jamaica’s trading partners fall,” he added.

Mr. Byles said the Bank anticipates that these measures will continue to cause interest rates on deposits and loans to rise further, “making savings in Jamaican dollars more attractive, relative to foreign currency assets, and borrowing in Jamaican dollars more expensive”.

“In turn, these measures will help to reduce the demand for foreign currency, leading to continued stability in the exchange rate, and will reduce demand in the economy, limiting the ability of businesses to pass on price increases to consumers,” he pointed out.