BOJ holds firm
THE CENTRAL bank announced this week its decision to hold firm the policy interest rate offered to deposit-taking institutions, DTIs, on overnight placements at the Bank of Jamaica, BOJ. The rate remains unchanged at 0.50 per cent per annum in the latest bid by the central bank to ward off inflation and keep the annual increase in consumer goods and services within the target of 4.0 to 6.0 per cent as agreed with the government.
The policy rate, the strongest signal of the cost of credit in the economy as well as earnings on deposits at DTIs, has remained unchanged since the pandemic. The central bank last adjusted the rate in August 2019, when it was shaved to the current level.
The latest BOJ decision comes despite global signs of growing inflationary trends, including rising commodity prices and inflation fears from the effect of huge spending by countries, led by the world’s richest nations such as the United States, in response to COVID-19induced economic fallout in their economies, even as employment, productivity and production levels remain constrained.
In May, for example, the US headline consumer price index, CPI, rose 5.0 per cent, the biggest jump in some 13 years, creating an inflation level that flew past the expectations of analysts. That level of CPI rise had not been seen since 2008, just before the global recession that sent the US economy and others around the world spiralling into the worst economic downturn since the Great Depression of the 1930s. In May, US core inflation, excluding food and energy, was reported to be the highest in nearly three decades.
“The decision to hold the policy rate unchanged was made by a unanimous vote by the bank’s Monetary Policy Committee (MPC). This decision was based on the MPC’s assessment that, despite recent increases in international commodity prices, the existing stance of monetary policy remains appropriate to support inflation within the target range over the next two years. The bank’s accommodative monetary policy posture is also aimed at supporting a recovery in economic activity in Jamaica,”
the BOJ said in a statement on Wednesday.
The continuing low-inflation stance is among the BOJ’s tools of measures to help revive the local economy in the wake of the massive downturn suffered from the pandemic.
In keeping with the projection, while annual inflation at 3.8 per cent up to April was tracking below the central’s bank target range, triggering a legally mandated BOJ explanation to the government, according to the latest figures supplied by the state statistical agency, the Statistical Institute of Jamaica, Statin, point-to-point inflation picked up to 5.0 per cent in May. Statin said the increase in inflation was fuelled by higher electricity, water and sewerage charges which led to a 3.4 per cent rise in the index for housing, water, electricity, gas and other fuels.
The next BOJ monetary policy decision announcement is set for August 19 this year.
A summary of the MPC deliberations at its June 28 to 29 meeting released by the central bank forecast rising inflation over the next year, even as it says the outlook beyond this year remains uncertain, especially in the context of COVID-19.
“Inflation over the next year could be higher than had been projected. In particular, inflation in the short term could rise to, or above, the upper limit of the bank’s range, but this should not persist beyond a year,” according to the BOJ.
The higher inflation levels, the BOJ said, is likely to come from more expensive oil and grain prices on the world market. It noted, however, that while a number of commodity prices are now above expected levels, some, including grain, have started to see a decrease.
Further possible increases in regulated prices, the BOJ notes, could also push up inflation. Water and sewerage rates were increased, effective May 1 this year, and the monopoly light and power distribution company, Jamaica Public Service, has applied to the Office of Utilities Regulation for an electricity rate increase.
The expected return to growth in the economy could also cause some inflationary pressures, the BOJ conceded in its MPC report. The BOJ remains upbeat on the prospects for growth, pointing to signs of a stronger-than-anticipated uptick in services, especially tourism, even as the turnaround in mining remains disappointing. All told, the BOJ expects growth in the levels of its 5.0 per cent to 8.0 per cent projected range for the fiscal year 2021-2022.