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Bank of Jamaica gets its independence

Senior staff reporter

Wednesday, April 21, 2021

THE Bank of Jamaica (Amendment) Act, 2020 took effect last Friday, allowing the central bank to operate independently of the Ministry of Finance.

The principal objectives of the legislation is that the Bank of Jamaica (BOJ) will oversee maintenance of price and financial system stability, with the primary objective being price stability.

The minister, under the new law, will no longer have the power to issue directions on monetary policy and, as such, the BOJ will have operational independence in the implementation of monetary policy.

One of the bank's new statutory committees, the Monetary Policy Committee, will seek to achieve and maintain price stability through the achievement of an inflation target set by the minister of finance in consultation with the governor of the bank, as required under the Act.

To ensure transparency and accountability, the notification of the inflation target, and minutes of the Monetary Policy Committee meetings will be made public in accordance with the Act.

The oversight capacity of the board has also been strengthened and the governance of the bank has been made more robust by staggered board appointments, which prevents the entire board from being changed in a single political administration. Instead, a single board vacancy will arise every two years.

The Act also prohibits the Government from borrowing from the central bank, except in a declared national emergency, by way of an order made by the minister subject to affirmative resolution, and in keeping with the provisions of the Act.

According to Minister of Finance and the Public Service Dr Nigel Clarke, the legislation, which was passed earlier in the 2020/21 fiscal year, paves the way for the central bank's modernisation.

Dr Clarke said that in anticipation of the legislation's passage, the Government injected a permanent allocation of $20 billion into the institution in 2018, which allowed the bank to be compliant with the capital standards of the Act.

He said that with price stability being the central bank's objective now and into the future, and with the BOJ empowered to pursue that objective with transparency and accountability, households, businesses and investors will be able to make more longer-term decisions and commitments.

He said this will deepen financial markets, make a wider pool of products available, increase financial inclusion, broaden opportunity, and “strengthen our economy”.

He also noted that the institutionalisation of stability will reduce risk premia (bonus) and borrowing costs over the long term, as there will be increased certainty about the conduct of monetary policy long into the future.

“This will create the conditions for longer-term planning, deepening of financial markets and greater financial inclusion,” the minister commented.