Jamaica Manufacturers and Exporters Association (JMEA) President John Mahfood says the lobby organisation has cautioned the Bank of Jamaica (BOJ) about the crippling impact that increasing the policy rate will have on businesses.

Speaking at a recent virtual meeting of the Lions Club of Kingston, the head of the JMEA said, “Manufacturing companies and small businesses both need access to loans and loans that are not very expensive. So, we have cautioned the Bank of Jamaica about increasing rates because the more that happens, the more difficult it is for small companies.”

With the overnight lending rate to deposit-taking institutions now at 4.5 per cent, Mahfood explained that “when this is translated into loans by banks, it means that people have to pay nine to 10 per cent on borrowings.”

Though he noted that the interest rate is not “exorbitant” at this time, Mahfood added that the JMEA would not want to see further increases as this could slow economic activity.

“We are concerned about…slowing the economy and people not being able to borrow,” Mahfood stated.

He admitted, however, that the central bank has had to increase rates to manage both inflation and exchange rates.

Effective March 30 2022, the BOJ increased the policy interest rate by 50 basis points with the aim of curtailing rising consumer prices and “maintain stability in the foreign exchange market”.

Mahfood explained that the increase will encourage Jamaicans to save in local currency rather than investing in US dollar-denominated instruments.

At the same time, he said that inflation is now being influenced by global events as the US and Europe are now recording inflation rates of around seven per cent.

“My hope is that they continue to manage the foreign exchange rate and they watch the interest rate because if they do those two things, we can still end up with a decent 2022 recovery,” he said.

In the past, the JMEA president said, economists would recommend the devaluation of the dollar to improve the country’s export competitiveness, but they have since realised that “devaluation makes people poorer”. Moreover, he argued that both runaway devaluation and interest rates have acted as disincentives to businesses exporting and expanding.

“Entrepreneurs are risk averse as a result of the history and, unfortunately, have been slow to go after the export market,” Mahfood, who is also the chief executive officer (CEO) of Jamaican Teas Company, remarked.

Mahfood also used the opportunity of the virtual meeting to champion the JMEA’s export thrust, indicating that it was a means through which businesses and, by extension, the country can earn foreign exchange and grow. He pointed to the global growth of GraceKennedy Group as an example of how companies can expand through exports.

In addition, he indicated that companies can also explore accessing capital from the Jamaica Stock Exchange. In particular, the Junior Market has catapulted the growth of companies that continue benefit from benefits including tax concessions.

From a governance standpoint, Mahfood asserted that the Government of Jamaica also has a role to play in reducing the barriers to growing the manufacturing sector, including reducing the cost of electricity, investing in crime fighting to reduce the security costs incurred by businesses, increased land titling, reducing GCT to 10 per cent, among other prospects.