UPDATED: Rising oil prices a risk to growth - Wynter
Bank of Jamaica Governor Brian Wynter has his eyes on the movement of oil prices on the world market as a result of geopolitical factors. Oil prices have risen 17.7 per cent since January, and the upward trajectory is already causing worry about growth projections that were based on prices at US$56 per barrel.
"The US$56 reflected our projections in January, and, essentially, that was pretty much the consensus, or close to the consensus, at the time. Things have changed, and oil is now notoriously volatile. We are now seeing higher oil prices for a few months," Wynter told Parliament's Public Administration and Appropriations Committee yesterday.
He was responding to a query from committee member Michael Stewart about the reasons for national growth projections being based on oil prices at US$56, given that prices were now running close to US$71 per barrel and no hedging arrangements were under way.
"We keep re-evaluating these numbers and they get built into the new forecast. At the moment, we are now projecting average oil price for the fiscal year at US$67.20. That's quite a significant increase," the Central Bank governor explained.
He said that the increase in oil prices has been absorbed without any significant increases in inflation, but the greater worry was if oil prices shot up and stayed up.
"This is not the shock that we have to worry about. It's when it goes up much more suddenly and stays there. We haven't seen that yet. The geopolitical situation in the world ... has a lot to do with what's going to happen with the oil prices. It remains an important risk to all projections and, indeed, a risk to Jamaica's own economic livelihood and its welfare," Wynter said.
(EDITOR'S NOTE: In a previous version of this article it was incorrectly stated that oil prices had risen by 25 per cent this year. That figure applies to the projected increase for the financial year over the previous.)