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Minister of Finance and the Public Service, Hon. Audley Shaw, has predicted inflation in the range of 10-12% or lower this year, due to exchange rate stability and moderate international commodity prices.
“We expect inflation for the fiscal year to be in the range of 10 to 12 per cent, reflecting stability in the exchange rate and moderation in international commodity prices. In fact, there is a possibility that the financial year’s inflation could be even lower, if the present trend holds,” Mr. Shaw said.
For calendar 2008, the inflation rate was 16.8%. But the Government says its projections for this year are supported by the fact that inflation for the fiscal year, up to August, was 4.1 per cent, significantly lower than the 10.3 per cent recorded for the corresponding period of 2008. Similarly, the 12-month, point-to-point, inflation fell sharply in August to 6.1 per cent, compared to 26.5 per cent in August, 2008.
Mr. Shaw was opening the debate on the revised figures for the 2009/10 Budget, based on the First Supplementary Estimates which he tabled on September 22, and successfully piloted through the House of Representatives early Wednesday morning (September 30).
He estimated a 3-4% decline in Jamaica’s Gross Domestic Product (GDP) during 2009/10.
“The fallout in economic activity continues to emanate primarily from the major contractions in Mining and Transport, Storage and Communication sectors. There was also a sharper than originally anticipated decline in Construction and the Retail Trade,” he told the House. He said that the decline in these industries would offset the growth estimated in the Agriculture and Hotel and Restaurants sectors.
The exchange rate depreciated by only J$0.18 (0.2 per cent in US$ terms) during the first five months of the fiscal year, compared to 9.4 per cent in the March quarter, he said. This stability in the exchange rate was underpinned by initiatives implemented by the BOJ, since the December 2008 quarter, which included moral suasion, the establishment of a foreign exchange facility for public sector entities and the intermediation of foreign exchange flows.
In this context, there was a significant decline in net foreign exchange demand to facilitate Balance of Payment current account transactions. This was mainly due to lower expenditure on consumer goods and fuel imports, as supply also fell, as a result of reduced inflows from tourism and remittances, he said.
A current account deficit of US$282.1 million (2.4 per cent of GDP) is estimated for the period April to August, 2009, representing an improvement of US$1,365.9 million, relative to the comparable period of the previous fiscal year. The estimated improvement largely reflects a reduction in the merchandise trade deficit, in conjunction with an increase in the surplus on the services sub-accounts.
The Minister also explained that there was a build up of US$305.6 million in the Net International Reserve (NIR) of the Bank of Jamaica. At the end of August, 2009, the gross reserves stood at US$1,981.4 4 million, representing 15 weeks of imported goods and services.
He said that consistent with the developments in the economy, the demand for private sector credit has been weak since the start of the fiscal year, continuing the deceleration observed since the final quarter of 2008/09.
Given the moderation in inflationary pressures and the stabilisation of the foreign exchange market, the Bank of Jamaica commenced an easing of monetary policy in the June, 2009 quarter. The Bank subsequently effected three reductions in interest rates, with the 180-day rate falling to 17.0 per cent on 20 August, while the 30-day rate was reduced to 12.5 per cent.

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