JAMAICA-Central Bank says the Jamaican economy continues to expand.

KINGSTON, Jamaica, CMC – Governor of the Bank of Jamaica (BoJ), Richard Byles, says the local economy continues to expand, which supports increases in aggregate demand for goods and services and can potentially drive inflation upward.

Byles, speaking at the BoJ’s Quarterly Monetary Policy Report, said that the Planning Institute of Jamaica (PIOJ) has estimated that the economy grew by 1.5 percent for the June 2023 quarter, and there are signs that the economy continued to expand for the September 2023 quarter.

Last week Tuesday, the Statistical Institute of Jamaica (STATIN) also reported that the unemployment rate for Jamaica in April 2023 was 4.5 percent, the lowest on record.

“This is indeed a momentous achievement for the Jamaican economy. Data on the unemployment rate, supported by anecdotal information about wage adjustments in selected private sector industries, indicates that the domestic labor market is very tight,” Byles told reporters.

He said from the BoJ’s perspective, this could threaten inflation if labor shortages translate into significant wage increases and higher prices.

Byles said that the Central Bank continues to project that actual growth domestic product (GDP) will grow by one percent to three percent for the financial year 2023/24, mainly due to expansion in the mining sector and continued growth in tourism and its allied industries.

“Over the medium term, the economy is projected to settle at its long-run growth rate of one to two percent,” he said.

The BoJ Governor said that the financial institution anticipates that higher agricultural prices, education costs, and wage pressures will contribute to inflation, remaining slightly above the target range for the next two months.

“Notwithstanding this uptick, inflation is forecasted to generally decelerate to the Bank’s target.

Range of four to six percent by the December 2023 quarter and, except a few months in 2024, remain there,” Byles said, adding, “This outlook is consistent with global consensus forecasts for the path of certain commodity prices as well as the bank’s continued tight monetary policy stance.”

He told reporters that inflation could rise above the projected path.

“Higher-than-projected future wage adjustments in the context of the tight labor market, second-round effects from the agricultural price inflation, worsening supply chain conditions, and an unexpected rise in world oil prices could put upward pressure on inflation.

“ Lower-than-projected inflation could be caused by weaker-than-expected global growth, which could negatively impact tourist arrivals and reduce domestic demand.”

Regarding the foreign exchange (FX) market, Byles said it has remained relatively stable within a narrow band over the past two years, reflecting, in part, the actions taken by the BoJ.

He said to prevent undue volatility in the foreign exchange market, BOJ sold approximately US$585 million via its B-FXITT facility so far this year.

“When these sales are set against BOJ purchases, however, the result is that the bank net purchased approximately US$ 761 million over the period. In this context, on 16 August 2023, Jamaica’s gross international reserves remained substantial at approximately US$4.6 billion, exceeding the standard adequacy measure by approximately 15 percent.”

Byle said that the BoJ projects that the gross reserves will remain adequate in the medium term, adding that “one of the outcomes of the bank’s management of the FX market is that it has served to anchor inflation expectations.”

He said that in BoJ’s latest survey of inflation expectations, less than 14 percent of the respondents indicated that solid depreciation in the exchange rate was the most critical factor behind their view of future inflation.

“The most frequently cited factor was changes in imported commodities such as grains and oil prices. The last time the exchange rate was the dominant reason was February 2021. At that time, 41 percent of the businesses surveyed reported the exchange rate as the most important factor guiding their inflation expectations,” the Central Bank Governor added.

Byles told reporters that inflation “is on its way down, and we expect it will continue to decline, except for some months when the general price increases could be adversely affected by exceptional circumstances.

“Bank of Jamaica remains committed to achieving its primary mandate of preserving price stability. The Bank will continue closely monitoring the global and domestic environments for potential threats to Jamaica’s inflation target and act accordingly.”

He said, among other factors, the Bank of Jamaica’s future monetary policy decisions will pay careful attention to the incoming data relating to the headwinds noted above, such as wage pressures and second-round effects of agricultural price inflation.