7 months ago
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Bank of Jamaica Governor Richard Byles says the untimely death of the Iranian president has added another layer of geopolitical tensions which could impact inflation and reductions in interest rates.
“We are concerned about that particular incident, but we are also concerned generally about any other incident – such as the Russian/Ukrainian war –and the effect it can have,” said BOJ Governor Richard Byles in response to a query at the quarterly press briefing on Tuesday.
On Monday, it was announced that the BOJ Monetary Policy Committee unanimously agreed to maintain the policy interest rate at 7.0 per cent, ensure relative stability in the foreign exchange market, and maintain tight Jamaican dollar liquidity conditions. That decision followed from MPC discussions over May 16 and 17, but the announcement came on the day the death of the Iranian president and other officials were confirmed from a helicopter crash that happened on Sunday.
There is no word yet on the cause of the crash.
The death of the Iranian president has been reverberating throughout the Middle East, especially given the current tensions with Israel.
“The MPC noted that a decision to reduce interest rates will depend on incoming data related to the risks to inflation. In particular, the evolution of wage adjustments, inflation expectations and core inflation are important factors that will guide the MPC’s decisions on policy rate adjustments and other monetary policy actions in the future. The Bank will maintain heightened surveillance of the risks to inflation,” said Byles at his quarterly press briefing on Tuesday.
In recent months, inflation has been trending in a favourable direction, and is currently back within target range at 5.3 per cent. By itself that would have been a strong signal for an eventual rate cut, but risks remain, including the enhanced Mideast tensions, and the continuing conflict in Eastern Europe, both of which are zones from which oil and other commodities flow to the world. Nature, too, could deliver its own blows to prices in the form of drought, heat waves, floods or storm damage.
After a year-and-a-half of holding the policy rate steady at 7.0 per cent, Byles indicated that the central bank wants to start moving the needle.
“We also want to reduce interest rates,” he said, but risks and uncertainties are delaying the switch in direction.
Another key factor includes the policy actions of the Federal Reserve, the central bank of the United States. That’s because the actions of the world’s largest economy will impact on liquidity flows, and therefore have implications for policy-setting in Jamaica. The BOJ expects the US Federal Reserve to start reducing interest rates later this year. However, the Governor quipped that the precise timeline for that shift was “above his pay grade”.
The central bank is mandated to defend an inflation target of 4 to 6 per cent. Annual inflation was 5.3 per cent in April, putting prices back within the target band.
But BOJ Senior Deputy Governor Dr Wayne Robinson says there is an expectation that inflation would breach the target again, moving slightly outside the range to around 6.5 per cent in the short term.
“We believe that by the second half of this year, we should be back in the target range,” he said.
Alongside, the geopolitical tensions and weather-related risks, there is also an expectation of reduced oil production.
“That will result in oil prices ticking upwards. That will feed through to transportation costs. But the general picture is that we are on a downward trajectory,” said Robinson.
“In the very near term, because of these extraneous factors, we are going to have a little bit of bumpiness in terms of inflation and our target range,” he added.
Alongside the reduction in headline inflation, which tracks consumer price movements, the central bank reported that core inflation, which strips out the heavily-weighted food and fuel prices, also fell from to 5.7 per cent, from 5.9 per cent in March.
The current outlook for inflation is more favourable than previous forecasts, largely due to the postponement of a second increase in public passenger vehicle fares initially scheduled for April. Additionally, processed food prices and the cost of meals away from home have been revised downwards due to lower international grain prices.
English (US) ·