4 months ago
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The Bank of Jamaica, BOJ, expects negative growth this fiscal year, due to the passage of Hurricane Beryl last month.
The central bank projected that the Jamaican economy would decline within a range of negative 1.5 per cent and 0.5 per cent on the high end for the year ending March 2025.
Growth is projected at 1.5 per cent to 3.5 per cent for the subsequent year, FY 2025-26.
On Wednesday, during its regular quarterly briefing on monetary policy, the BOJ indicated that it has confidence in the economy’s resilience.
The central bank on Tuesday shifted its stance from the holding pattern on interest rates to implement a rate cut, its first since the pandemic. The seven per cent rate that has held since November 2022 was cut by 25 basis points to 6.75 per cent, effective Wednesday, August 21.
“We should interpret this as a cautious signal that we intend to loosen policy further in the future if conditions remain as positive as they are,” said BOJ Governor Richard Byles.
In recent weeks, the BOJ has been loosening the flow of liquidity in the economy, after nearly three years of tightening the tap to stop inflation from growing. That was followed this week by the rate cut.
“The reduction of 0.25 basis points, we hope, is the beginning of better times ahead to reduce rates in the future,” said Byles.
As to the BOJ’s expectations that the economy would contract this year, BOJ Deputy Governor Robert Stennett said the bank did not foresee Jamaica entering into recession. A recession is technically defined as two consecutive quarters of negative growth.
Byles added that there’s also no expectation of a recession in the United States, which is Jamaica’s main trading partner.
“The possibility of a USA recession is not really on, but rather, a soft landing, and that’s good for us,” the BOJ governor said.
The rate cut is expected, eventually, to influence interest rates or financing costs for institutions and could eventually trickle down to consumers. The cut won’t likely impact economic activity, but allows for better planning, Byles said.
“Will this impact GDP? I do not know that 25-basis points will. I doubt it. But business people can say to themselves that when they are making decisions, that generally in Jamaica, interest rates are on the way down, barring unforeseen circumstances, and therefore they can start to put in place forward-looking plans,” said Byles.
Despite the temporary inflationary impact expected from Hurricane Beryl, which disrupted agricultural supplies, the BOJ forecasts that inflation will stay within its target range over the next two years. The annual inflation rate cooled to 5.1 per cent in July, within the BOJ’s target range of 4.0 per cent to 6.0 per cent.
The BOJ said the domestic economy reflects signs of reduced consumerism, which it termed the easing of demand; a stable exchange rate, and lowered inflation expectations, and is supported by declining US inflation and lower international commodity prices.
Future rate cuts by the central bank will be driven by incoming data, with the BOJ noting that it will closely monitor risks such as fluctuating energy prices, as well as global economic conditions.
English (US) ·