Breaking ground in inflation targeting


Wednesday, June 19, 2019

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The concept of inflation targeting, which has become the buzzwords for action at the Bank of Jamaica (BOJ) and in financial circles, gained further traction with the presentation by Therese Turner- Jones, general manager of the Country Department Group of the Inter-American Development Bank (IDB), who spoke at a recent seminar hosted by the BOJ. This was the second of two BOJ seminars held at its auditorium in downtown, Kingston, which were conducted under the theme 'Demystifying inflation'.

“Forty-one countries are currently tracking inflation and as a result, these countries have begun to see marked improvements in their economies since targeting inflation.

“Countries such as New Zealand, from as way back as 1989 have adopted such a strategy with others, for example, Canada, United Kingdom, Chile, Turkey, United States and Japan subsequently following suit. Outside of Jamaica, some of the recent subscribers include India and Argentina,” Turner-Jones shared with her receptive audience.

Turner-Jones, through the aid of a visual map of inflation rates over a specific period, pointed out that, Jamaica, since shifting to inflation targeting, has managed to maintain consistent, stable levels, all within the parameters of its prescribed range of 4-6 per cent.

Based on information from the same visual representation, the inflation rate as at April 2019 stood at 3.9 per cent, which shows that the country is punching almost right on target.

The IDB top executive acquiescing with all her economist counterparts believes that inflation targeting is very useful as a nominal anchor as it “helps to bolster confidence in monetary policy and price stability”.

Likewise, it “establishes a transparent numerical target for inflation and guides expectations about monetary policy actions, insulates the BOJ from possible pressures to finance government and allows for the flexibility of the exchange rate to act as a shock absorber”.

“Inflation targeting is quite useful in gauging the economy for growth and though it's not a perfect strategy, it has proven to work and this is what accounts for the many countries now seeking to move in this direction.

“The work of small states such as Jamaica is evidence that size doesn't matter, what that does is show the need to have policy direction and the capacity.

“All that's left to do in the case of Jamaica is to finish fiscal reforms such as instituting a fiscal council and undertaking the necessary public sector reforms to further increase fiscal space and flexibility,” Turner-Jones posited.

The central bank in its quest to effectively communicate its fiscal policy is using these seminars as well as print advertisements, jingles and music videos to promote its strategy and to provide information to the wider public.

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