In my article last Wednesday — just before the Bank of Jamaica’s (BOJ) Quarterly Monetary Policy Report press conference on Thursday, August 20, at the bank’s auditorium in Kingston — I outlined how the baton of governor had been passed from Richard Byles to Dr Brian Langrin, and provided a brief profile on both men.

However, I believe it would be useful to delve deeper into the very long career of Byles in the financial sector and as a banker. After, amongst other things, a stint as a consultant at Barita, Byles joined Pan Caribbean Merchant Bank as CEO at the invitation of one of the founders — the late Maurice Facey — who by then fully controlled Pan Caribbean, one of Jamaica’s largest conglomerates.

After two years at Pan Caribbean, he was appointed CEO of Pan Jamaica, which owned First Life insurance company. Under Byles’ leadership, First Life became the only Jamaican life insurance company to survive the financial crisis of the 1990s unscathed, without needing a bailout, and, indeed, its overall financial services segment grew sharply by acquisition over that period. Through a reverse merger of First Life with Sagicor (post-financial crisis), Byles became CEO of Sagicor, one of Jamaica’s largest financial groups, and was ultimately succeeded by Christopher Zacca.

At the time, many, if not most, of his peers would have regarded him as Jamaica’s top financial CEO, and it was this immense credibility that caused his former University of the West Indies alum, then Finance Minister Dr Peter Phillips, to make him co-chair of the Economic Programme Oversight Committee — a public-private partnership designed to keep the International Monetary Fund (IMF) programme on track at a very critical time.

He played an enormous role in helping to stabilise confidence after the 2013 domestic debt exchange, along with his co-chair, then BOJ Governor Brian Wynter. In an inspired choice, after Byles had retired from Sagicor, then Finance Minister Dr Nigel Clarke decided to name him BOJ governor and successor to Wynter.

The exchange rate

Former economist Gerard Johnson was the local and then regional Inter-American Development Bank representative between 2006 and 2016 — that critical decade of Jamaica’s turbulent economic history — including the 2013 to 2016 period when our true macroeconomic turnaround finally began.

As stated in our article last week Wednesday, he argued Byles accomplished a seamless change in Jamaica’s foreign exchange policy from a free float to a “more managed smoothing of its path”, which he believed was key in allowing Jamaica to meet its inflation target despite numerous mega shocks since. Incidentally, such a policy had long been supported before it was adopted by the Jamaica Chamber of Commerce.

Noting that on his second day in office Byles gave him the advice that he will always be judged by the exchange rate, when asked whether the bank was relying on the exchange rate to help contain inflation while leaving its policy rate unchanged, new BOJ Governor Langrin (like his predecessor) clearly rejected the suggestion that the central bank was targeting a particular value for the Jamaican dollar.

“The exchange rate is a floating one. We just want to manage volatility,” he said. “We don’t set exchange rate targets.”

As the governor noted, for the past year the foreign-exchange market has remained relatively stable despite elevated global risks, with the exchange rate appreciating by 2 per cent year-over-year as at August 13, compared to a 2.2 per cent depreciation a year earlier.

This tight band for exchange-rate volatility has been the pattern in the aftermath of the COVID-19 pandemic when, partly as a result of the inflation shock, the central bank has seemed to follow a path of “smoothing” the exchange rate to dampen what I unscientifically describe as “excess volatility”. In the process, we appear to have been recently moved back to the category of a managed float by the IMF rather than a free float using IMF definitions (there are actually not many free floating developing countries). However, the BOJ has certainly not announced any exchange rate targets, and indeed denies having any, a policy the new governor has explicitly restated in his first press conference.

And this policy appears to be working. Despite the huge impact of Hurricane Melissa on foreign exchange-earning industries such as tourism, the BOJ has sold US$1.1 billion through its B-FXITT intervention mechanism over the 12 months to July, but net purchased US$803.3 million more foreign currency than it has sold overall. As a result, gross international reserves have further increased to US$6.7 billion, equivalent to 144.3 per cent, using the IMF’s reserve adequacy measure.

Inflation expectations remain elevated but relatively contained.

At the press conference, Deputy Governor Wayne Robinson made the central bank’s position clear regarding inflation expectations. “If these expectations start to rise very strongly, then that is also a basis on which we will have to act, and act very, very quickly,” he said. In short, a further rise in inflation expectations added to a wider spread of second-round price increases would force it to raise interest rates. “If those two forces collide, what you’re going to have is that overall inflation is then going to not only accelerate, but become persistent, ” he said.

Robinson added that over the last two months, and particularly last month, the BOJ had seen some amount of “still limited” second-round effects.

Freshly installed Governor Langrin reiterated BOJ’s commitment to closely monitor incoming data and inflation expectations and its preparedness to adjust the monetary policy stance should upside risks materialise and threaten the return of inflation to the target range. “The message today is straightforward: The bank is holding the policy rate steady because the current inflation pressures appear largely temporary, but we remain alert and ready to act if those pressures become more persistent.”

While Langrin largely signalled continuity on monetary policy, his first press conference also offered an early indication of a possible further aggressive push on financial-sector reform, about which he described himself as “passionate”.

I will cover more in my next article.

Keith Collister