BOJ holds firm as lawmakers spar on economy
As the parliamentary Opposition joins a call from the Jamaica Manufacturers and Exporters Association (JMEA) for the central bank to rescind its one percentage-point increase in deposit interest rates, Bank of Jamaica (BOJ) Governor Richard Byles appears unmoved, arguing on Tuesday that the institution was prepared to use its toolkit to contain inflation.
Byles’ defence of the central bank’s decision to increase interest rates came during a meeting of Parliament’s Public Administration and Appropriations Committee (PAAC) where lawmakers sparred over macroeconomic projections by the Planning Institute of Jamaica (PIOJ).
One of the tools used by the central bank to contain inflation within the projected four per cent to six per cent band is to adjust interest rates.
Byles told lawmakers that a one percentage-point increase was calibrated to not have a serious impact on growth. However, he made it clear that the adjustment would signal that the bank was prepared to move rates if businesses did not adjust their expectations of prices.
Describing inflation as the quickest means to make poor people poorer, the central bank boss declared that the BOJ’s mandate was to defend the country against outsize inflation.
“Do we want to put an impediment to growth? ‘No’. But do we want to step up to the mandate that has been given to us? ‘Yes’ and it means that we have to deploy the tools that we have at hand,” he said.
Late Tuesday, Opposition Spokesman on Investment Anthony Hylton added his voice to the JMEA’s call for the BOJ to rescind its decision to increase deposit interest rate from 0.5 per cent to 1.5 per cent.
Hyton said that the increase in interest rate at this time was “unreasonable”.
The opposition spokesman raised questions about the central bank’s claims that the increase was aimed at ensuring that the annual increase in the prices of consumer goods and services remained within the stipulated target.
“Inflation caused by supply disruptions is fundamentally different from demand-induced inflation, typically managed by macroeconomic fiscal or monetary policy,” Hylton said.
St Ann South Eastern Member of Parliament Lisa Hanna pressed officials from the PIOJ and BOJ on projected economic targets for full recoverery by fiscal year 2023-24.
Hanna highlighted several global issues, including COVID-19-induced global supply chain disruptions that were causing international commodity prices to spike.
She also bemoaned the sharp rise in commodity prices in Jamaica, noting that “the only thing that has not gone up is the respect for politicians in Jamaica”.
Hanna argued that the country was heading into a serious crisis in terms of prices and interest rates.
“So when you say that we are going to recover faster by 2023, when someone is taking home less than $7,000 a week with the current inflation and basic food items continue to increase ... you can’t sit here and tell me that we are in for an easy ride,” she said.
But Juliet Holness, MP for St Andrew East Rural, charged that PAAC members should not be suggesting that planning bodies did not know what they were doing.
“We are sending the wrong signal,” Holness argued, indicating that the technocrats had the competence to provide a credible forecast of the country’s macroeconomic targets.
“If their projections do not include the understanding of what we know is happening in terms of chicken cost and what is happening in terms of commodity prices, then we do not need to sit in front of them,” said Holness.
However, acting chairman of the PAAC, Fitz Jackson, said that while he had the highest regard for public servants and their competencies, “none of us is beyond being questioned about what we do”.
He said it was not strange to see disagreements among economists in relation to technical matters.
“When there is a difference of perspective by any one of us, it is not a disrespect or condemnation, and we have the right and authority to differ just like any other professions who differ.
“I just want for the record, the reservations and concerns do not represent in any way a questioning of the intellectual competence of our public servants,” Jackson said.
Responding to claims that the PIOJ’s projections have not materialised in some cases, PIOJ Director General Dr Wayne Henry said that there were mitigating circumstances that caused the agency’s projections to be off target.
“Jamaica is susceptible to types of vulnerability,” said Henry, adding that there might be downside risks and upside protection, as well as weather-related shocks that could affect the agency’s forecast.
“You are going to have issues arising and events occurring that would throw out and cause a deviation, if you will ... . We want to make the point that a lot of our forecast is credible.”