'I get annoyed'
King slams BOJ critics
KING.... the Bank of Jamaica is doing what it says it was going to do, it was going to defend a low inflation rate. (Photo: Naphtali Junior)

ECONOMIST Dr Damien King is slamming pundits for being critical of the Bank of Jamaica's (BOJ) interest rate hikes, chiding them for making comments that are informed from only "looks into the sky".

He added that the rising policy rates is evidence that the country's central bank is committed to taking any action necessary to achieve its mandate of low, stable and predictable inflation, which is the foundation for long-term economic growth.

"When I hear commentators opine...by saying that the central bank is overtightening and it's an excessive response, as an economist I get annoyed," King told the Jamaica Observer in response to queries about his views on the BOJ's interest rate hikes aimed at curtailing runaway inflation.

The central bank has hiked its key policy interest rates over the last 12 months from its historic low of 0.5 per cent to a now 11-year high 6.5 per cent, prompting opposition chiefly from the Private Sector Organisation of Jamaica and the Jamaica Manufacturers and Exporters Association. Financial economist Dr Adrian Stokes, who is one of the staunchest critics of the policy, expressed in an interview with the Business Observer last month that he fears the BOJ may have increased its policy rate too much so far.

But King doesn't share their opinion and while not identifying any pundit, was himself critical of the commentators.

He continued: "The Bank of Jamaica, whatever you want to say about them, they do a technical analysis that is based on a lot of data and some kind of model of the economy, so it's coming out of something. So when a pundit sits down and looks to the sky for two or three seconds and says, 'well, I think they are overtightening', on what basis are you drawing that conclusion? On the basis of which data? On the basis of which assumptions? On the basis of which model?"

King said he could not give an informed opinion about whether the BOJ is overtightening. "I don't know if their response is excessive. But because I don't know, then I can't be criticising the outcome of the information that they are using."

"Let me be clear, unless I have the time and the means to do the analysis at a similar level of sophistication, I have no business in saying their response is excessive."

However, local pundits are not the only ones raising concerns about interest rate hikes. The International Monetary Fund, in its just concluded annual meetings in Washington, warned about the risks central banks face of "under and over-tightening" as they seek to restore price stability which has been disrupted by a series of overlapping crises, the latest being the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

But King, having addressed local critics, turned his attention to the central bank.

"When the Bank of Jamaica spent two or three years telling everybody, that we are making a commitment to low, stable and predictable inflation, nobody said, 'I don't want low and stable and predictable inflation. Nobody objected. When the Bank of Jamaica said, our inflation target is 4 to 6 per cent, nobody said, 'No, No, No, I don't want that, I want high inflation'. But having bought into low, stable and predictable 4 to 6 per cent range inflation, when the inflation rate goes above that, and the Bank of Jamaica does what it says it was going to do, now people are saying why you doing this and you shouldn't be doing this and you should allow the interest rates to stay low. The Bank of Jamaica is doing what it says it was going to do, it was going to defend a low inflation rate."

But the Bank of Jamaica's rate hikes have largely been blunt against stubborn inflation which has risen from 8.2 per cent last year September, prompting the central bank to implement its first hike in year, to 10.2 per cent in August. It has since dipped again in September to 9.3 per cent as reported by the Statistical Institute of Jamaica on Tuesday, showing that despite a year of BOJ rate hikes, inflation remains stubbornly high.

King noting that observation questioned rhetorically: "So therefore how can you say the response is excessive. I mean make up your mind. If the inflation rate remains stubborn, then maybe we should raise the policy rate some more."

He went on to outline that the low, stable and predictable inflation is one of the most important elements of an economic climate of investments and rapid economic growth.

"It is especially so in a small open economy where every economic and business decision depends on the exchange rate and the exchange rate being predictable."

"If you want a low rate of exchange rate depreciation you have to have a low rate of inflation. Everybody wants a low rate of depreciation because that facilitates long-term planning and it also gives you less volatility in the exchange rate. So therefore, you want low inflation and you get low inflation by having the central bank defend the inflation rate...when it goes above 4 to 6 per cent. So, what the central bank is doing, is backing its commitment to low inflation and we need to therefore accept that we are going to put up with the short term consequences for the economy which might be a recession, in order to have a climate for long run economic growth. And, frankly whether the right policy rate to fight inflation is 5 per cent or 6 per cent or 7 per cent and so they are overshooting by a little bit or undershooting by a little bit is less important to me than the fact that they are actually trying to maintain a low inflation environment and raising interest rates to do so."

Dashan Hendricks

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