In February I warned Jamaicans of the crisis we would face if Russia invaded Ukraine. Not only would the world’s largest economies impose financial sanctions on Russian banks, but any conflict with associated sanctions would’ve reduced Russian oil supplies, immediately driving up global oil prices while halting food production and export to international markets. In tandem with severe supply chain disruptions, these events only forecasted inflation.

Our inflation is primarily imported. In small economies like Jamaica, this spelled disaster — as we are essentially import dependent for food, raw materials, and all capital equipment. Consequently, inflation factors such as the Russian/Ukraine war, movement in global wheat and oil prices, shipping rates increases, supply shortages, and China factory lockdowns; the US excess money supply into their economy as a response to the novel coronavirus pandemic cannot be influenced either by our Government or the Bank of Jamaica (BOJ).

This past July our inflation was at 10.9 per cent, coming down from 11.8 per cent in April. To counter inflation, the BOJ has increased interest rates several times this year. Central bank Governor Richard Byles asserts that the Jamaican interest rates will continue to grow unless inflation decreases to the BOJ target range of 4 per cent to 6 per cent.

We appreciate that the BOJ has a difficult job in maintaining a balance between inflation and the bank policy interest rates. Still, the latest increase in September, which brought the BOJ policy rate to 6.5 per cent, is a step too far. As a result, the Private Sector Organisation of Jamaica (PSOJ) and Jamaica Manufacturers and Exporters Association (JMEA) have pleaded with the BOJ to cease any further rate increases. Why? Because higher interest rates hamper people from buying goods and services, thereby reducing growth in the economy.

For example, the stock market dropped by more than 20 per cent in the United States, along with a decline in housing starts and purchases, when the Federal Reserve raised interest rates to 3.25 per cent. The impact of this move has reversed several years of positive growth, and financial analysts indicate that the US will go into recession if the Federal Reserve raises the rates to 4.5 per cent, as it has signalled.

What’s good for our economy

On the positive side, the BOJ’s move to maintain a stable exchange rate between US$152 and US$156 over the past year has been beneficial. These moves, in tandem with our net foreign exchange reserves, remittances and tourism inflows, bauxite and export earnings, and the price of importing oil, aid in establishing our inflation rate.

Thankfully, Statistical Institute of Jamaica (Statin) has reported that unemployment is at a record low of 6 per cent as of April 2022, with jobs available in construction, tourism, business process outsourcing (BPO), and the service sector. As of December 2021 there were 1,216,367 people employed in Jamaica, resulting in greater domestic demand.

With this in mind it could be argued that the employees are in a better position to bear inflation. The data demonstrates that Jamaica is on a growth path. The critical quantitative targets for the financial year 2021 to 2022 were real economic growth of 5.2 per cent, inflation of 5.1 per cent, a primary surplus of 6.1 per cent of gross domestic product (GDP), a fiscal surplus of 0.3 per cent of GDP, and a debt stock of 107 per cent of GDP (Economic and Social Survey of Jamaica 2021). Mostly, it is the inflation target that appears to be off-track.

Our focus, therefore, should be on continuing to grow our economy. Two of the best ways to achieve this goal are to give small and medium-sized businesses access to capital at low interest rates and provide low mortgage rates to encourage homeownership and growth in the construction sector. The BOJ, having moved the policy interest rate from 0.5 per cent in August 2021 to 6.5 per cent today, makes doing business for small business owners very hard.

Suppose they had taken a loan to purchase capital goods, such as a car, construction machinery, or a farm tractor. In that case, they could see their monthly interest payments double or even triple. If the taxi operator’s monthly car loan payments increase, they will have to pass that on to the passenger with a fare hike.

Therefore, if the BOJ continues to stay on its course to bring inflation down it may very well put people out of a job if employers cannot service their loans, increase salaries, or make other investments to grow their business.

Balancing the books while balancing people is never easy; however, the Bank of Jamaica cannot only focus on the targeted inflation range at the expense of economic growth. Jamaicans, now more than ever, need some breathing room. More significantly, the high interest payments will invariably drive up other costs to consumers already experiencing trouble making ‘ends meet’ to buy food, pay transportation, energy, mortgages, and other hire purchase payments.

Now that oil prices are stabilising, Ukraine has resumed its wheat exports, container shipping rates from China have fallen from US$20,000 to US$5,500, China is returning to normalcy, and the FED is tightening its money supply, the BOJ should have ‘held its hand’ to allow these positive external factors to pass through our economy. But, instead, they raised the rates again in September, the consequences of which will impede the economic livelihood of many Jamaicans, especially those operating small businesses and others with bank loans.

In light of all the factors, the pronouncements and concerns of our private sector leaders resonate with urgency: “While the Jamaican economy has shown resilience as evidenced by the latest quarterly GDP growth numbers of 5.7 per cent, further tightening of monetary policy by the BOJ would slow domestic demand to levels which would put Jamaica’s growth prospects of 2.5 to 4.5 per cent for 2023 at risk.”

If the signals of a looming recession in the United Kingdom and the United States are accurate then Jamaica must prepare to cushion the fallout. In this regard, I support the calls of the private sector to “caution the BOJ against further interest rate increases as it fulfils its mandate of containing inflation”.

Lisa Hanna is Member of Parliament for St Ann South Eastern, People’s National Party spokeswoman on foreign affairs and foreign trade, and a former Cabinet minister.