The Governor of the Bank of Jamaica, Brian Wynter projects Jamaica’s inflation rate to drop towards First World lows in three years which will trigger even further reductions in interest rates.

It would result in single-digit inflation or amongst the lowest price increases in two decades for Jamaica which currently has the third highest inflation in the hemisphere.

“For the medium term (two to three years) the BOJ is forecasting that inflation will fall in the range of 5.5 per cent to 7.5 per cent,” Wynter stated in his quarterly press briefing held at the BOJ headquarters in downtown Kingston.

He later told the Business Observer “that all things being equal” it would positively impact on reducing interest rates which already are at 7.25 per cent the lowest in three decades.

Wynter’s caveat includes higher than anticipated increases in international commodity prices including oil. But generally the forecast of single digit inflation is predicated on the “continued weak consumer demand, relative stability in the foreign exchange market and continued moderation in inflation expectations”.

The BOJ’s mandate according to Wynter is to achieve low and stable inflation in line with that of major trading partners roughly five per cent in the long-term. Jamaica however recorded double digit inflation for the 2010 at 11.4 per cent but its inflation for fiscal year ending March 2011 should range between 7.5 to 9.5 per cent.

“Whilst the achievements to date of high single digit inflation may be satisfactory from a historical perspective, it is not too soon for us to consider how we will reach the lower single digits of our trading partners which in 2010 was 5.1 per cent,” he said.

Jamaica has never achieved inflation under five per cent since 1989. Its best calendar performance was in 2006 at 5.7 per cent but most years the country recorded double-digit inflation according to BOJ data. For instance, Jamaica recorded the third-highest inflation rate among 22 regional nations in 2010, according to data released January by a United Nations body, the Economic Commission for Latin America and the Caribbean (ECLAC). Only Trinidad & Tobago and Venezuela at 12.5 per cent and 27 per cent respectively recorded higher inflation. Jamaica however has achieved high single digit inflation between 1997 to 2002.

At the same time, real Gross Domestic Product (GDP) contracted between zero to 1.0 per cent during the December quarter reflecting a weak economy amidst strong fiscal accounts stated Wynter. Net International Reserves (NIR) stood at US$2.17 billion at December 2010 which was US$351.4 million above targets set by the IMF programme.

“To date, the government and the BOJ have met all the quantitative targets under Stand-by Arrangement with the International Monetary Fund (IMF)…. The reviews that the country has received from the IMF have been encouraging and we continue to make progress on the structural benchmarks which are aimed at increasing efficiency in fiscal management and the financial system. In the context of these developments, the outlook for inflation remains favourable, interest rates continue to trend down, the foreign exchange market remain relatively stable and net international reserves continue to be robust . However, although there are signs of improvement in domestic output, the economy remains weak,” he stated.

Later, Wynter concluded that the private sector must intervene more aggressively: “The quarterly observance of the targets under the IMF-SBA and the associated programme of reform have affirmed perceptions about the progressive improvements in Jamaica’s macroeconomic management. These continuing improvements must now form the foundation for a more robust participation by the private sector in the creation of sustainable economic growth and development”.