Davies By Balford Henry, Senior Reporter
MINISTER OF Finance and Planning Dr. Omar Davies yesterday admitted the Government's failure to meet 2000/2001 interest rates targets but promised to return to a programme of sustained reduction next fiscal year.
In a statement to the House of Representatives on the state of the economy at the close of calendar year 2000, he said this was the one significant area of the macro-economy which had not gone according to plan.
"Up until September, we were well on target in terms of the planned decline in interest rates. However, instability in the exchange rate system continued over an extended period, despite significant interventions by the Bank of Jamaica," he said.
He said the Central Bank had no option but to carry out a "sharp upward adjustment" in interest rates. The decision was given great thought by the Government, recognising the negative impact on the economy, but also significantly on the Government's fiscal position of any upward movement in interest rates, the Ministry of Finance being the largest borrower.
He said, however, that despite the negative repercussions, the rise in interest rates has had the desired effect of stabilising the foreign exchange market.
But, Dr. Davies was confident of returning to the interest rates reduction policy in 2001/2002.
"I state with confidence that within the next few months we will return to the path of sustained reduction in domestic interest rates," he told the House.
JLP spokesman on Finance, Audley Shaw, asked the Minister to state the revised targets for interest rates, in light of the failure to meet this year's targets, and whether it was mere idle speculation that inspite of the strong Net International Reserves (NIR) there was nervousness in the foreign exchange market.
Dr. Davies reiterated there had been a "hiccup" in terms of the interest rate programme but that a reduction had already been put into motion through the one-year instrument issued by the Bank of Jamaica. He said although he could not indicate a timetable, he expected the reduction to continue in an orderly way.
In terms of the NIR, he said it stood at US$950 million and was expected to exceed US$1 billion before the end of the current fiscal year.
