Tue | Sep 19, 2017

Private sector credit grows nearly 10%

Published:Tuesday | March 8, 2016 | 3:02 PMMcPherse Thompson
Governor of the Bank of Jamaica, Brian Wynter.

Private sector credit increased by an annual rate of 9.6 per cent in the fourth quarter of 2015, an acceleration of the pace estimated at end-September. Then the growth rate was 7.8 per cent.

The Bank of Jamaica sees it as continued evidence of the crowding in of private sector investment associated with fiscal consolidation, a stable macroeconomic environment and its accommodative monetary policy.

BOJ Governor Brian Wynter also said Monday at his quarterly briefing on monetary policy that the quarterly credit conditions survey at September 2015 indicates that the supply of credit increased to both households and businesses, while lenders reported an increase in the demand for credit from small and medium-sized enterprises, attributing it to improved conditions since the start of the economic reform programme.

?A further boost to credit expansion has come from the recent bond payout. These conditions bode well for faster growth from investments in infrastructure, capital equipment and training driving increased exports and import substitution,? Wynter said.

He was referencing the $62 billion payout from maturing National Debt Exchange bonds in February.

That month, to mop up some of the liquidity, the Ministry of Finance floated three bonds with tenors of two to 30 years to raise $15 billion, which, as Wynter noted, were oversubscribed.

acceptance

?This demonstrated overwhelming investor acceptance of government risk just 10 business days before the general election, a period traditionally associated with risk-aversion and avoidance of long-term commitment,? said the central bank chief.

?Clearly, domestic investors are again willing to buy long-term government debt and accept fixed interest rates in local currency.?

However, unable to find a home, some investment funds from the bond payout that were not taken up by the government sought short-term protection from uncertainty by seeking US dollars in the days that followed.

Wynter said the BOJ promptly met the resulting excess foreign exchange demand with sales of US dollars and by issuing US-dollar indexed one-year certificates of deposit.

?These operations together drained $23 billion from the system and restored balance to supply and demand in the foreign exchange market. The exchange rate has remained stable and net international reserves are still well in excess of the target? in the IMF programme,? he said.

?As stakeholders turn their attention away from the recent electoral events we expect that the weight of surplus liquidity in the banking system will intensify the crowding in effect and we will see increasing downward pressure on interest rates and easing in of credit terms for households and firms.?

Wynter noted that the consumer prices deflated by 0.4 per cent in January, resulting in an inflation rate of 3.7 per cent, compared to 5.3 per cent for the same period in 2015. Inflation for fiscal year 2015/16 is now expected to be below the target range of 5.5 per cent to 7.5 per cent.

The Bank?s projection for 12-month inflation over the next four quarters is between 4.5 per cent and 6.5 per cent.

Wynter said that with the Jamaican dollar no longer overvalued, the improving inflation outlook and the resulting narrowing of the inflation differential between Jamaica and the United States, the exchange rate is likely to exhibit relative stability going forward, although some correction may become necessary if the US dollar continues to strengthen against third currencies such as the euro, pound sterling and Canadian dollar.

The 11th and 12th quarterly performance reviews under the IMF programme will be undertaken in May.

?Between now and then we will be engaged in a period of intense policy dialogue with the IMF as the plans and programmes of the new government are developed in the context of the Extended Fund Facility agreement,? the BOJ governor said.

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