KINGSTON, Jamaica — “If we had not taken the steps that we have, what do you think inflation would be like in Jamaica (today)?” Bank of Jamaica Governor, Richard Byles, responded to questions about the bank’s policy from Opposition Leader, Mark Golding.
“This stability in the exchange rate is playing an important role in moderating the cost of imported goods and tempering inflation expectations,” Byles told MPs from the 63-member Standing Finance Committee of the House of Representatives, on Tuesday.
“If we had not raised interest rates, nor tighten liquidity and no closed down of the banks’ NOPs (Net Open Positions), where do you think inflation would be today?” The Governor responded to questions from Opposition members about the bank’s handling of the threat from high inflation, expensive foreign debts and the fear of oil and food shortages due to the war in the Ukraine.
“If everybody could get Jamaican dollars cheap, because rates are low, and buy US dollars with it and then migrate their investments with it, where do you think inflation in Jamaica would be? So, while the results are not what we want it to be, in that we have 10.9 per cent (inflation), it is better than the 15, 17 or 20 per cent that we might have, had we not taken the steps that we have taken,” he cautioned.
“We are seeing no sign of a recession. Yes, there is the concern that growth would be adversely affected and that there is a high risk of recession. The bank has been gradual in its rate increases: Constantly monitoring the incoming economic data,” he said..
He noted that STATIN recently reported that the economy grew by 6.4 per cent in the March, 2022 quarter which, he highlighted, was stronger than the 51/2 percent the bank had projected.
“We expect that growth will be moderate this year, but remain positive, in the range of two percent to four percent, driven by a continued recovery in tourism,” he proposed to cheers from the Government members of the committee.
“Of course, a lot depends on what happens in the US But, although the situation is very fluid, banks share the views of major forecasters that the likelihood of a recession, at this time, is low,” he noted.
Byles also pointed out that the exchange rate has been more stable, relative to the recent past. He said that the exchange rate at the end of June, this year, compared to December of last year, appreciated by 2.3 per cent, or about J$3.58 cents compared to the first half of last year, when there was a deprecation of 4.1 per cent.
“This stability in the exchange rate is playing an important role in moderating the cost of imported goods and tempering inflation expectations. For perhaps the first time in the history of the banks’ survey the exchange rate was not the major reason for inflation expectations.
“If we had not taken these actions, inflation would have been even higher. The impact on workers, and the population in general, which is already significant, would be worse. If unchecked, the second round effects of these commodity price stocks would lead to inflation and feeding on itself and creating a wage inflation spiral,” he informed the committee.
He said that the scenario is neither good for consumers, nor for businesses.
“Yes, there is the concern that growth would be adversely affected and that there is a high risk of recession. The bank has been gradual in its rate increases and constantly monitoring the incoming economic data,” he stated.