BANK of Jamaica (BOJ) Governor Richard Byles says despite the negative impact of COVID-19, the central bank has remained accommodative to the banking sector.

“The BOJ has maintained its accommodative monetary stance aimed at encouraging and supporting a speedy economic recovery once this crisis has passed,” he told the Public Administration and Appropriations Committee (PAAC) at its meeting last Thursday.

The committee was meeting to review the 2020/21 Second Supplementary Estimates, which were tabled in the House of Representatives last Tuesday by Minister of Finance and the Public Service Dr Nigel Clarke.

The estimates are for an additional $15.7 billion, in both recurrent and capital expenditure, to support efforts to revive the economy and to increase support for the most vulnerable Jamaicans, through COVID Allocation of Resources for Employees (CARE) packages, as well as by supporting the health and wellness ministry.

“In the real economy, the COVID-19 pandemic has had a serious impact on economic activities. A significant contraction in real GDP [gross domestic product] in this fiscal year in the range of seven to 10 per cent is projected, and there is some risk that the fall in GDP for the current fiscal year could be larger than currently anticipated,” Byles noted.

He said that a partial recovery of economic growth is expected during fiscal year 2021/22, in the range of about three to six per cent. However, he pointed out that the Jamaican economy is not expected to return to pre-COVID-19 levels before 2022/23.

Turning to balance of payments issues, Clarke said that the BOJ projections for the current account deficit will deteriorate to 6.4 per cent of GDP in the current fiscal year, from 1.1 per cent in the previous year.

He explained that the widening of the deficit was mainly because of the lower visitor arrivals due to the COVID-19 pandemic. Among the main areas impacted were the international airports, however, he said remittance inflows have been significantly better than originally anticipated.

The BOJ governor said that the current account deficits are projected to deteriorate further in 2021/22 to 6.7 per cent of GDP, before averaging a sustainable level of 3.3 per cent of GDP in 2022/23.

Jamaica’s international reserves declined by US$415.1 million over the calendar year to end September 2020, and now stands at US$2.7 billion, but this must be seen in the context of initiatives by the bank to augment supplies of foreign currency to the market, he added.

He said that despite the decline in reserves, the BOJ has been selling foreign exchange to the market but its reserves have remained strong with gross reserves at the end of September at US$3.7 billion.

In the foreign exchange market, the fallout in foreign currency earnings associated with the sudden halt in tourist arrivals amid the spread of the novel coronavirus has produced “episodes of high volatility in the exchange rate”.

As at September 30, 2020, the Jamaican dollar had depreciated on a year-over-year basis by 5.1 per cent against the US dollar.

In response to the impact of the pandemic on the economy, BOJ instituted a number of measures to assure financial institutions adequate access to foreign currency liquidity during the challenging period.

He said that among initiatives introduced by the BOJ was the measure to reduce the foreign currency cash reserves requirement of deposit-taking institutions. The bank also sold foreign exchange to major buyers through the B-FXITT flash sale options. It also expanded the foreign currency swop arrangements with authorised dealers and provided a US dollar repurchase facility.

Total liquidity support to the market from these facilities since the start of the crisis has amounted to more than US$800 million. He said that the bank also provided Jamaican dollar liquidity by reducing the Jamaican dollar cash reserve requirement by two percentage points, to the statutory minimum of five per cent.

“We offered a bond buying instrument to the DTIs [deposit taking institutions] and security dealers for Government of Jamaica and BOJ securities, and we instituted a special repo facility for credit unions,” he stated.

Total liquidity support provided for the market through these initiatives was in excess of $75 billion. The banking system, therefore, remains sound, and credit continues to grow, particularly in the business sector, Byles said.

He said, however, that the COVID-19 pandemic has had a substantial impact on the Jamaican economy, despite significant mitigating monetary and fiscal policy measures.

He noted that there remains significant uncertainty about the prospects for the economy, particularly in the context of the rise in infections locally and globally.

Byles added that the bank remains focused on maintaining inflation within the target range of four to six per cent, and stands ready to deploy additional measures, as needed, to continue the smooth flow of liquidity in the financial system.

In light of the challenges associated with the pandemic the bank has instituted a number of policy measures since March, aimed at adequate liquidity to ensure the continued orderly functioning of the banking system and financial markets, the BOJ governor added.