Sat | Sep 30, 2023

BOJ projects continued growth

Published:Wednesday | February 19, 2014 | 12:00 AM
Governor of the Bank of Jamaica, Brian Wynter, speaks at the central bank's quarterly briefing at the Bank of Jamaica, Nethersole Place, Kingston, on February 18, 2014. - Rudolph Brown/Photographer

McPherse Thompson, Assistant Business Editor

The Bank of Jamaica (BOJ) is projecting economic growth in the March 2014 quarter at about the same 1.4 per cent pace estimated for the December 2013 period.

The projection is predicated on stronger growth in the global economy, ongoing recovery from the impact of Hurricane Sandy in 2012, and a fillip to investor confidence from the continued implementation of policies under the International Monetary Fund programme, said BOJ Governor Brian Wynter at his quarterly press briefing on monetary policy Tuesday.

Similar to the two previous quarters, increased economic activity is expected to be largely reflected in the performance of agriculture, forestry and fishing; mining and quarrying; hotels and restaurants, and construction and installation.

For fiscal year 2013-14, which ends in March, the BOJ is forecasting GDP growth to be in the range of zero to one per cent.

Notably, Wynter said, headline inflation was 1.9 per cent for the review quarter, below the bank's projected range of two to three per cent.

Inflation was largely driven by administrative increases in water and sewerage rates, the higher cost of fuel, increased demand associated with the Christmas holidays, and some pass-through from exchange-rate depreciation.

That was moderated by the weak but recovering domestic demand conditions and further declines in the cost of communication and international grain prices, the governor said.

"For the March quarter, we are projecting a further slowing in the rate of inflation to a range of 1.5 per cent to 2.5 per cent," Wynter said.

The main inflationary impulses are expected to stem from some pass-through of depreciation to the prices of processed foods, services and durables as well as seasonal adjustments, he said.

There will also be some countervailing influences from declines in international commodity prices as well as the improving but still relatively weak domestic demand, Wynter said.

BOJ is maintaining the projection for inflation for fiscal year 2013/14 within the range of 8.5 per cent to 10.5 per cent, but with the point estimate at the middle to lower end of the range.

Regarding the issue of liquidity, Wynter said the BOJ's activities to alleviate tight conditions for the Jamaican dollar resulted in a net injection into the system for the review quarter.

Notwithstanding that, liquidity in the system remained relatively tight and concentrated, contri-buting to a general increase in market-determined interest rates in the quarter, including the yields on Government of Jamaica Treasury bills.

Nevertheless, in the context of the outlook for moderate growth and somewhat slower inflation, the BOJ maintained its 30-day monetary policy signal rate at 5.75 per cent.

"The bank's monetary policy is expected to maintain a steady course in the near term to guard against risks to inflation from elevated inflation expectations, while preserving a climate that is hospitable to increased investment financed by further expansion of credit to businesses," Wynter said.

He said preliminary estimates indicate a reduction of US$307 million in the current account deficit of the balance of payments for the first three quarters of the fiscal year when compared with the corresponding period in 2012-13.

The improvement mainly reflected a smaller merchandise trade deficit and higher net remittance inflows.

The fall in the current account deficit, along with official capital inflows, supported an increase in the net international reserves, bringing it to US$1.04 billion at the end of December, exceeding the target by US$200 million.

Wynter said, however, that with increased demand for foreign exchange during the December quarter, the Jamaican dollar depreciated by 2.6 per cent against the US dollar, following a 2.1 per cent decline in the preceding quarter.