Reduced Demand for Financing to Sustain Low Interest Rates – BOJ

Bank of Jamaica (BoJ) Governor, Bryan Wynter, says the reduction in Government’s demand for financing, and the freeing up of resources for private sector investment and growth, should create and sustain low inflation and interest rates, and stabilise the foreign exchange rate.

This pronouncement comes against the background of the Bank's projection of a reduction in the inflation rate during the second half of the current fiscal year, which is expected to range between one and two per cent per quarter.

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Speaking at a post-Budget media briefing at the BoJ's auditorium, downtown Kingston, on Thursday June 14, Mr. Wynter noted the likely spike in the inflation rate during the current June quarter, to range between three and five per cent, while pointing out that this is expected to be the period recording the highest level of increase for the year

He attributed this to the direct impact which the recently announced revenue measures, outlined in the 2012/13 Budget, will have on areas such food and non-alcoholic beverages, recreation and culture, and restaurant and accommodation services. The Governor is, however, anticipating a deceleration in the inflation rate, in the ensuing months following the June quarter.  

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“So, for the September quarter, we project inflation to be in the range of 2.5 to 3.5 per cent, and a further sharp slow-down to one per cent and two per cent per quarter is expected for the second half of the fiscal year, from October onwards. And, we expect to be back to the one to two per cent per quarter range. This is consistent with the six to eight per cent of underlying inflation that we projected initially,” the Governor said.

He pointed out that the sharp return to normal levels would materialise as the inflationary pulses from the tax measures subside.

“The projected deceleration of the inflation rate, after the interim spike, is supported by the forecast for imported commodity prices which, given the uncertainty of the world economy, are not expected to increase significantly during this fiscal year,”  the Governor said.

While noting that the overall inflation projection for this year of between 10 and 12 per cent represents an increase, relative to inflation of 7.3 per cent in the 2011/12 fiscal year, Mr. Wynter is optimistic that the figure is expected to revert  to between six and eight per cent by 2013/14.  

By Douglas McIntosh, JIS Reporter