The Jamaica Manufacturers and Exporters Association (JMEA), has warned that the latest move by the Bank of Jamaica (BOJ) to increase interest rates puts the economy at risk of a recession with the price of basic food items set to go higher.

The warning follows the latest move last week by the central bank to again increase interest rates. In a statement following the latest hike in interest rates the JMEA objected strongly to the move.

It lamented that the BOJ has constantly ignored its warnings that the repeated hikes in interest rates was putting the local economy at risk. The JMEA noted that the latest increase which took effect on Friday has resulted in a cumulative increase of 450 basis points since October of last year.

The influential lobby noted further that Jamaica still faces adverse conditions due to the COVID-19 pandemic, supply chain and logistics crises, with these now being aggravated by the Ukraine-Russia war. It said rising prices and interest rates are adding a greater level of uncertainty to the already worrying situation.

“Continued interest rate hike does not facilitate business but will only kill operations!” said the JMEA. “Our people are suffering from underemployment and increased cost of food, energy, and transportation, and we cannot afford to derail the small improvements in the economy currently taking place,” it added.

The BOJ’s policy interest rate, which is the rate offered to deposit-taking institutions on overnight placements with the central bank, increased to 5 per cent per annum from 4.50 per cent. It has now issued six rate hikes in recent months as it pushes to rein in inflation which stood at 11.8 per cent as at April 2022. The BOJ’s inflation target is in the range of 4-6 per cent.

Despite the BOJ’s rationale, the JMEA said it was “extremely concerned” that a tighter monetary policy position “presents a risk to Jamaica’s short to medium-term economic growth prospects”. It cited that the economy was at a “delicate stage, and it is the responsibility of policymakers to act within this context”.

“Policies should not be implemented in isolation but must consider all factors… Local manufacturers have been experiencing price increases since 2020 and often have not fully passed these increases to consumers. For businesses to survive, and maintain employment levels, at some point they will have to pass on these increases to consumers,” the group warned.

And, the JMEA warned further that there are risks to the booming construction industry, with mortgage rates climbing to 8.5 per cent before the latest rate increase.

“Any further increases will likely have a significant negative impact on the construction industry,” it stated.

The JMEA said the manufacturers were being impacted by the supply chain crisis which requires them to access financing to run high inventories to supply critical goods.

“The world is on the brink of famine as many countries hug their food supplies. The Government should be supporting local manufacturers and farmers to make sure Jamaicans have food, fertiliser, and oil to survive this global crisis,” it said.

Continuing, the JMEA said “Jamaica, like the US is at a point where further increases in interest rates could lead to a recession. Looming external risks may cause a downturn in tourism and a reduction in income of Jamaicans living in the US, which will impact remittances, coupled with our domestic matters, would undoubtedly derail any possibility of the economy meeting its growth target.”

The JMEA pointed to the Ukraine-Russia war, noting that Jamaica was being impacted like any other country by the events in Eastern Europe. It said Jamaica, like others, still faces adverse macroeconomic conditions due to the COVID-19 pandemic, supply chain, and logistics crises, with these being aggravated by the months-old conflict.

“Jamaica is not alone, but we are extremely vulnerable given our economic dependency to these large economies and years of minimal growth,” said the JMEA while outlining that estimates show that the local economy grew by 4.6 per cent in 2021, below the expected range of 7 -10 per cent initially predicted.

However, while sticking to its position over the past several months, and continuing to do so, the BOJ said inflation is projected to rise further over the next two months but fall in the second half of the year, consistent with projections for a decline in commodity prices.

“This means that the public should start to see lower inflation rates each month, beginning in the second half of 2022, as long as tensions between Russia and Ukraine do not escalate and inflation among Jamaica’s trading partners falls,” the central bank said.