Sun | Jul 22, 2018

Private sector credit spikes in June

Published:Friday | September 2, 2016 | 12:00 AMMcPherse Thompson

Private sector credit has been growing at levels not seen since 2013.

It grew at an annual 14.4 per cent to June, compared to 4.5 per cent during the same period last year, according to Brian Wynter, governor of the Bank of Jamaica (BOJ),.

The June out-turn accelerated from 10.7 per cent in March this year. In real terms, Wynter said, stripping out the distorting effect of inflation, there was a double-digit growth in private-sector credit of 11.4 per cent in the 12-month to June 2016 compared to virtually no growth the year before.

Contrary to prior annual trends, more of that acceleration was in lending to businesses rather than households, Wynter told a press briefing on the quarterly monetary policy report for the period April to June 2016 at the BOJ's downtown Kingston offices on Monday.

"This robust private-sector credit performance is indicative of a welcome increase in economic activity," he said. "It is also consistent with lenders' expectations for an increase in the demand for, and the supply of, credit as shown in the most recent credit conditions survey."

Deputy Governor Wayne Robinson said the central bank has been seeing growth in private-sector credit in the tourism sector, distribution and electricity, as well as a sector called 'professional and other services', which would capture business processing and related services

Referring to the electricity sector, he said that "in particular, we saw a very strong loan growth there and that, we believe, is related to the expansion being undertaken by the utility company".

Wynter said general improvement in the macro-economic environment has also supported other forms of domestic financing, including equity financing, which continue to reflect buoyant growth.

The increase in the rate of private-sector credit expansion has been supported by the BOJ's accommodative monetary policy stance, the governor said.

Lower interest rates

Generally lower levels of interest rates and responsive liquidity conditions have supported credit growth "and we have seen declines in interest rates in all categories of private-sector loans during the review period," he added.

In May, the central bank reduced the policy rate the interest rate on the 30-day certificate of deposit by 25 basis points to five per cent.

"The policy rate is now the lowest on record," said the central bank chief.

Wynter suggested that the accommodative stance of monetary policy continues to be appropriate in the context of good news coming in on the inflation front.

He said annual inflation decelerated to 2.5 per cent in June 2016 from three per cent in March, and the latest information from the Statistical Institute of Jamaica confirmed a further deceleration to 2.1 per cent at July 2016.

The low inflation outcomes reflect moderate increases in domestic agricultural prices, partially offset by declines in the cost of energy and transport-related services.

Core inflation also remains subdued, reflecting lower exchange rate pass-through and the effects of continued fiscal restraint and cautious monetary policy adjustments, Wynter said.

The governor also noted that inflation expectations in Jamaica continue to portray it firmly anchored low single digits.

In the central bank's most recent inflation expectations survey, conducted in May, expected inflation 12 months ahead declined to 3.8 per cent from 4.3 per cent in the February 2016 survey.

"This is encouraging, as expectations continue to be for inflation in the future to be less than the fiscal year target of 4.5 per cent to 6.5 per cent," Wynter said.

BOJ is projecting that inflation will rise to meet the target by the end of the fiscal year with an uptick in the second half - near to the last quarter - due to a modest rise in commodity prices.

"Our objective in the medium term is to return inflation closer to where inflation is now, that is, in line with inflation in our main trading partners," the governor said.

Wynter said those and other developments point to an improving economy that is on its way to sustainable rates of growth and job creation, and is underpinned by the exceptionally strong performance under the International Monetary Fund-supported programme.