THE Bank of Jamaica (BOJ) said Monday that it does not expect recent salary increases to have a material impact on the inflation rate and stayed from signalling when it may start to reverse rates. Governor Richard Byles, however, mirrored language contained in Friday’s release from the monetary policy committee (MPC) which announced a continuation of the pause in its policy rate going into a seventh-straight month.

“We are going to have to feel confident that we are firmly within the 4 to 6 per cent corridor [for inflation],” Byles responded when asked about the earliest time he could forecast rates starting to be reversed.

Inflation dipped to a 21-month low 5.8 per cent in April and has been declining steadily over recent months, but Byles indicated that it is too soon to start thinking about reversing rates which have been settling at 7 per cent since November last year.

“Until we are satisfied that that is the situation and we are confident that we can stay in that 4 to 6 per cent corridor, I don’t see us stepping back from that 7 per cent.”

Byles added that he would have to see relative stability in international commodity prices that are easily spooked by everything from rains to geopolitical tensions over which he has no control, before the contemplation of rate reversals could be made, which he said would in any case be done “gingerly, in small steps”.

Just like language in the MPC release on Friday, he said the expectation over the next few months is that the inflation rate will spike above 6 per cent, and that it will settle at “between 4 to 6 per cent between the December 2023 and March 2024 quarters”.

Yet seemingly addressing concerns that the rate increases have to be watched carefully to ensure it doesn’t push the economy into a recession, Byles was clear that price stability was more important.

“We want growth, and if growth means you can borrow cheaper than you currently can, well certainly that is an objective that we have bought into and would like to see happen. But our number one priority, our number one mandate, is to manage inflation and to the extent that the 7 per cent [policy rate] is helping us to, we are going to stick with that. Whenever, in the near future, we feel we can step back from the 7 per cent and still have inflation in that 4 to 6 per cent corridor, we will do so then,” he continued.

A hot-button topic now is public sector salary increases especially after the new wages for the political directorate announced last week caused consternation among taxpayers. But outrage aside, Byles said the combined increases in salary across the country will have only a negligible effect on the overall rate of price increases.

“Generally, we think that salary increases will amount to an inflationary impact of about 0.5 per cent. That is our estimate. That is not to say that it can’t have an extraordinary demonstration effect that pushes future wage increases beyond what we expect,” Byles observed.

That “demonstration effect” refers to the case of people adjusting their behaviour after observation of the actions of others and their consequences.

For the BOJ, Byles said that could come with people “who were considering [to ask for], let’s say, [a] 10 per cent [increase] feel now [that they) can ask for 15 per cent. That’s what is of some concern to us”.

He also cast a worrying eye on the stand-off between the US president and the Congress over raising the debt ceiling in the US by June 1 to avoid that country defaulting on its debt payments for the first time in its history.

“The US debt ceiling is a big concern for us. We certainly hope it comes to a soft landing during the course of this week, because it is certainly not good for anyone throughout the world to have the US being in a situation where they may default on payments or being unable to make payments. Most of our reserves are held in US dollars as is the case for most countries in the world,” Byles said.

That reserve at the end of April stood at US$4.7 billion.