Central Bank governor Derick Latibeaudiere. - File
The central bank has projected that inflation will at least double the Government's initial projection of six to seven per cent this fiscal year and has warned that rising prices will help to further weaken the Jamaica dollar.
Bank of Jamaica has already pumped about US$1 billion into the foreign exchange market this year to help shore up the currency, but the central bank has not said how much more cash it is willing to commit to the effort.
Neither has it said what, in the current environment would be an optimum exchange rate for the Jamaican dollar, which traded yesterday at J$71.37 to the U.S. dollar.
But the bank's governor, Derick Latibeaudiere, indicated on Wednesday that pressures on the Jamaican dollar had helped fuel inflation and undermine targets.
"We are expecting inflation in the range of 12 to 13 per cent in this fiscal year," Latibeaudiere told reporters and market analysts at his quarterly briefing.
Spiralling prices
The previous People's National Party (PNP) administration, chucked out by voters in the general election last September, had managed to contain inflation to single digits for the better part of a decade, until worsening fiscal imbalances in recent years contributed to spiralling prices and a return to double digit inflation.
Former Finance Minister Omar Davies carved the April budget on 6-7 per cent inflation for this year.
But, Latibeaudiere said on Wednesday that mid-year hurricanes, flooding which battered domestic agriculture, allied with the rocketing price for oil and grain on the global market had clobbered Jamaica and thrown inflation projections badly off track.
The Statistical Institute (Statin), the official arbiter of national statistical data, which in September unveiled a revised consumer basket, has not issued a projection for inflation for either the calendar or fiscal years.
However, the agency this week reported that prices rose 1.4 per cent in October, following hikes of one per cent and 1.6 per cent for the months of August and September, respectively.
The latest figures brought inflation for the calendar year to 10.4 per cent and that for the fiscal year to 7.7 per cent.
Latibeaudiere pointed out that in the quarter to the end of September headline inflation, measured by Statin's revised consumer basked, was 3.6 per cent, up more than a percentage point on the 2.6 per cent for the June quarter.
He expected prices to rise between 3.3 per cent and 4.3 per cent during the current quarter, up to the end of December, and moderate a bit in the last quarter of the fiscal year.
But a slow down in the movement in prices in the period between January and March would to be sufficient to stop inflation being more than double the rate the technocrats had laid out at the start of the year.
The new administration has fallen under criticisms for hikes in food, transportation and utility prices.
While he did not specifically address these criticisms, Latibeaudiere argued that the current bout of inflation was not a failure of current monetary policy.
"To a large extent, this year's inflation is outside the authority's control," he said.
However, the central bank boss said he expected "some pass through of the accelerated movement (in prices) in the exchange rate."
The value of the Jamaican dollar has slipped just over six per cent since the start of this year, but the downward spiral has been particularly sharp on recent months, forcing the BoJ, according to Latibeaudiere to pump a net US$191 million in the forex market between July and September.
This intervention, plus an offer of special fixed rates certificates of deposit to mop up liquidity in the market had slowed depreciation of the Jamaican dollar during the quarter to 2.6 per cent.
Yet this was more than double the 1.1 per cent decline in the June quarter.
Even with the outflows, the central banks net international reserves, at the end of October, stood at over US$1.92 billion, Latibeaudiere apparently believes that this provides him with decent ammunition to maintain relative stability in the forex market.
For instance, asked what would be the impact if there were a concerted pressure on the exchange rate, Latibeaudiere said that the central bank would not hesitate in moving to bring stability to the market.
"We have sold in the market since the beginning of the year perhaps a billion dollars," he said.
Other central bank technocrats later confirmed the figure.
The BoJ governor suggested, however, that any action would be thoughtful and calibrated.
"It has to be stability with sense," he said. "We have to manage the foreign exchange market with sense."
Last the new prime minister, Bruce Golding disclosed in Parliament that the previous administration had predicated the budget on an exchange rate of J$71 to US$1, drawing an attack from Davies, the former finance minister.
Critics argue that by attempting to score political points, Golding had provided speculators with privileged information which could be used to mount attacks on the Jamaican currency and market it more difficult for Latibeaudiere to achieve and maintain currency stability.
On Wednesday that central bank sought to downplay the impact of Golding's faux pas even as he handed the prime minister what appeared to be a mid rebuke.
"It has never really been the practice to publish the parameters on which the budget (is predicated)," Latibeaudiere said.
But with that information coming halfway through the fiscal year and that exchange rate on which the budget was crafted having been reached and exceeded, the revelation had "less of impact", he said.
Pressed on whether there was an impact nonetheless, Latibeaudiere responded: "It is less problematic."
business@gleanerjm.com
