BOJ projects 3% growth in post-COVID rebound
Bank of Jamaica, BOJ, is projecting growth of three per cent for Jamaica by March 2022, but notes the rebound could be nearly three times that estimate.
“The bank projects a partial rebound of about 3.0 per cent growth will commence in financial year 2021-22, and could possibly be as high as 8.0 per cent if there is a strong recovery in tourism. However, the Jamaican economy is not expected to return to pre-COVID-19 levels before financial year 2022-23,” said BOJ Governor Richard Byles at his quarterly briefing on monetary policy and the economy on Thursday.
The central bank expects slightly higher inflation within the October-December 2020 quarter due to the persistent rain, and its forecasts indicate that the target range of 4 to 6 per cent could be breached.
The BOJ expects consumer prices to rise by 5.5 to 6.5 per cent in the December quarter, 6.0 to 7.0 per cent in March 2021, and 4.0 to 5.0 per cent in the June 2021 quarter.
“We are therefore indicating that there is some risk that inflation could breach the upper end of the target range in both December 2020 and during the March 2021 quarter,” said Byles, who attributed the expected rise to rain-induced rises in food prices, and an expected jump in utility bills. “We again stress that these spikes will be temporary, and wish to assure that once we get through this blip, our forecast is for inflation to remain within target over the next two years,” he said.
Additionally, the BOJ said that banks continue to hold sufficient capital, but that they should still continue holding off on paying dividends to those who hold over 1.0 per cent shareholding. Non-performing loans stand at 2.8 per cent across the financial system, or “well below the benchmark of 10 per cent,” said Byles.
In April, banks and other deposit-taking institutions agreed to halt dividends for a year, which was later amended to allow for distributions to a subgroup of minority owners who hold less than a per cent in shareholding.
Byles said that stock market investors, looking for the resumption of dividends, should look to strides made to control the pandemic and improvement in the economy, rather than tracking a new calendar or financial year.
“We are still looking to see more stability,” he said.
Byles lauded the banks for holding back on dividends, which both safeguarded their capital and obviated the need to remit distributions overseas by the banks with foreign ownership. He also remarked on the restraint exercised by financial institutions on the issuing of foreign-currency instruments, which would have reduced pressure on foreign exchange in the system.
The Jamaica currency was down 6.7 per cent up to the end of October, way ahead of the 2.6 per cent depreciation recorded a year ago. Byles said that the depreciation was “still moderate under the circumstances,” in reference to the pandemic. At end-October, in excess of US$240 million was sold to the market to augment supplies since the start of the pandemic, the central bank said.