Facing mounting criticism from manufacturers and business leaders who argue that delayed action has exacerbated Jamaica’s economic slowdown, the Bank of Jamaica (BOJ) has defended its timing in reducing interest rates.

The central bank asserted that its decisions are grounded in rigorous, data-driven analysis rather than anecdotal evidence and suggested that a swifter response might not have produced the desired outcomes.

“Remember that data comes in a lagged way. In the business community, people may sense it — maybe the store is not selling as much — but that’s just anecdotal. The data that comes out from Statin is what we use to make our decisions, so even if there was a slowdown that began in February or March, we wouldn’t get that data until July or August. We currently have that data and can make that decision,” said BOJ Governor Richard Byles, at a press conference held on Wednesday.

Effective August 21, 2024, the BOJ reduced its policy rate by 25 basis points to 6.75 per cent.

Manufacturers, however, have expressed frustration with what they perceive as a slow response to the economic challenges facing the country. One of those manufacturers, box maker AMG Packaging, noted in its April to June quarterly financial statements that there was a slowdown in orders associated with a downturn in the economy, which resulted in a decline in revenues for the period.

In speaking with the Jamaica Observer recently, past president of the Jamaica Manufacturers and Exporters Association John Mahfood noted that while he welcomes the reduction in the interest rate, he believes it shoud have happened much earlier and that the cut should have been bigger than announced.

“The BOJ took too long to reduce the interest rate, and even the quarter per cent reduction feels too low unless they plan to continue reducing rates every month for the rest of the year,” Mahfood stated. He highlighted the significant impact of high mortgage rates on the construction industry, which has seen a marked slowdown as homebuyers struggle to afford current rates.

The concerns raised by manufacturers are supported by recent data showing a decline in both business and consumer confidence during the second quarter of 2024. According to the Jamaica Chamber of Commerce, consumer confidence fell to 169.5 points from 174.7 points in the first quarter, while business confidence dropped to 133 points from 139.7 points over the same period.

Don Anderson, pollster and chairman of Marketing Services Limited, noted that while the overall macroeconomic outlook remains positive, rising crime and the high cost of living are weighing heavily on consumers’ personal financial situations.

While acknowledging that the central bank’s policy decisions might appear delayed to those on the ground, BOJ Senior Deputy Governor Wayne Robinson, emphasised that the reduction in the policy rate was, in fact, a second step in a gradual easing of monetary policy.

“Recall at the last decision, we actually started the process of easing monetary policy,” Robinson said.

“As the governor indicated in his press statement, we injected about $20 billion into the system and have begun to see money market rates ease. We are now just following up on that to make another adjustment, a second step, in terms of signalling more clearly and more definitively how we want interest rates to trend,” he added.

Robinson said that the central bank had previously indicated its intent to monitor several key indicators, including actual inflation trends, inflation expectations, and the strength of the domestic economy. He emphasised that these factors were crucial in ensuring that inflation remained anchored within the target range of 4 to 6 per cent as it began to decline.

“That is why we keep repeating that the policy decisions are informed by incoming data, and that’s very important in an environment of uncertainty,” the deputy governor said.

Jamaica’s rate cut comes ahead of an expected reduction in policy rates in the United States in a few weeks time.

“The hope now for Jamaica is that looser monetary conditions in the US will stimulate economic activity in that market, which will be net beneficial to the local economy . A lot will depend on how aggressive the BOJ will be with interest rate reductions . This will determine the extent to which they can engineer a soft economic landing,” Adrian Stokes, financial economist and CEO of Quantas Capital told the BusinessWeek.

The recent interest rate cut, as the second step in a broader strategy of policy easing, is part of the BOJ’s three-pronged approach to monetary policy. This strategy includes adjustments to the policy rate to signal the desired direction for interest rates, tightening liquidity, and maintaining a proactive stance.

In further defence of the BOJ’s actions, Governor Byles explained that the primary goal of tightening monetary policy is to slow the economy, a necessary step to reduce inflation. He noted that the resulting economic slowdown indicates that the transmission mechanism is working as intended.

“The point is, you can’t slow inflation without squeezing the economy; it’s the same in the United States. The Fed is there watching unemployment, watching economic growth, and they want to see economic growth slow a bit; they want to see unemployment rise a bit. At that point of inflection is when consideration can be given to where interest rates go because, at that point, they know the transmission system is working,” he said.