BOJ bullish on economy
Published:Friday | August 13, 2010 | 12:00 AM
The central bank on Thursday remained upbeat that the Jamaican economy is on the route to recovery, saying that it could even record growth of one per cent this fiscal year.
But at the same time, the Bank of Jamaica's governor, Brian Wynter, pointed to one potentially paradoxical consequence of this positive development - a negative effect on the BOJ's profit and loss accounts.
According to Wynter, the central bank will lose money on its operation this fiscal year.
BOJ this week reported losses of J$9.7 billion as at the end of July - roughly the same level of the Government's indebtedness to the central bank.
"Interest income on foreign assets will continue to be very low - in line with the bank's conservative nature," Wynter said.
Interest payments on its open market instruments issued in Jamaica are expected to significantly outpace income from foreign assets.
The BOJ's balance will also experience foreign exchange losses on the Special Draw Rights (SDRs) it holds from the International Monetary Fund (IMF).
The fund on Thursday announced a 0.598 per cent adjustment of the currency value of SDRs - one of which is now equivalent to USD 1.51421.
At the same, the Jamaican dollar has in recent months appreciated against the greenback, to which it is largely benchmarked.
"In addition, the bank's local currency income from GOJ securities has been reduced," Wynter said.
At July 28, the BOJ had total foreign assets of J$212.9 billion and local assets of J$138 billion. Total assets: J$350.7 billion.
Liabilities amounted to J$242 billion.
But the state of the central bank's balance sheet was, for Wynter, secondary to signals in the economy in the quarter to June.
Rather than a sharp decline which appeared likely early in the year, the central bank now projects that output for the fiscal year, when it ends next March 31, could land flat or rise up to one per cent up.
Positive signals
"This growth is expected in the latter part of the fiscal year, with the first expansion since the September 2007 quarter," Wynter told journalists.
"Already, there has been resumption of production in the alumina industry, which will contribute to growth in the mining sector. This will be complemented by growth in agriculture, forestry and fishing, transport, storage and communication and electricity and water supply."
Among the positive signals in the June economic quarter, Wynter reported, was the slowdown of inflation to 2.6 per cent, within the lower reaches of the BOJ's forecast of 2.5 per cent to 3.5 per cent.
This was despite a sharp hike in bus fares in April, which was moderated by lower commodities prices, a 4.1 per cent appreciation of the Jamaican dollar against the US dollar as well as weak consumer demand.
The BOJ governor expects further deceleration in price movements in the current quarter, at 1.5 per cent to 2.5 per cent.
"The forecast for September is lower than the average rate of 3.8 per cent for the previous five quarters," said Wynter. "Contributing to the lower projected inflation out-turn are the expectations of stable capacity conditions, declining inflation expectations and stability in the foreign exchange market."