THE GOVERNOR of the Bank of Jamaica (BoJ), Derick Latibeaudiere, yesterday gave an overview of the country's economic performance for the March quarter.
Below is the full text given at a press briefing held at the BoJ's downtown headquarters.
INFLATION
ONE OF the greatest challenges to the economy, which was also of concern to the central bank in the last fiscal year, was the interruption of seven consecutive fiscal years of single digit inflation, due largely to a bout of instability in the foreign exchange market, plus increases in taxation, bus fares, and the minimum wage.
Unfortunately, and even with a relatively speedy return to stability, it is always much harder to bring inflation back down once it has gone up, but the control of inflation is what a central bank is all about, it is our core mandate, it is what we are here for, and I am here to assure you that we are on the job.
Inflation for the quarter ending June 2002 was 1.65 per cent, and the figure for the same period in June 2003 climbed to 6.9
per cent.
I am now pleased to report that the expectation for inflation at the quarter ending June 2004 is 2.6 per cent.
On a monthly basis, inflation in June 2003 was 2.5 per cent, relative to 0.86 per cent for June 2002. The expectation for June 2004 is 1.1 per cent.
SUSTAINED STABILITY
Against the background of sustained stability in the foreign exchange market, boosted by increased inflows as well as increased investor confidence, the return to lower
levels of inflation is a trend that is expected to continue for the rest of the fiscal year.
While it is not expected to interrupt the overall downward trend in inflation, the present trend in global oil prices is a possible obstacle in terms of exactly how low we are able to push inflation during the course of this fiscal year.
We continue to monitor this development and, as always, the central bank remains committed to fostering and sustaining a low inflation environment as much as existing circumstances will allow.
INTEREST RATES
I turn to the matter of interest rates.
The central bank has always maintained that it is committed to a low interest rate environment, in so far as prevailing
economic conditions will allow.
In recent months, those "prevailing economic conditions" have been characterised by increasing levels of investor confidence, boosted by improvements in the fiscal position and strong foreign exchange inflows. This confidence has been manifested in sustained stability in the foreign exchange market despite the presence of high levels of Jamaica Dollar liquidity.
The increase in investor confidence has also expressed itself in a willingness to hold Jamaica Dollar assets at lower interest rates, by some appreciation of the local currency, and by increased activity in the stock market.
The stability in the foreign exchange market has been reinforced by the healthy state of the Net International Reserves which, at current levels in the region of US$1.7 billion, is the highest it has been since March 2002.
In this context, and in keeping with its expressed commitment to lower interest rates, the central bank has already cut interest rates nine times since the start of this
calendar year, and fifteen times since March 2003.
Further rate adjustments will be forthcoming as prevailing market conditions dictate.
REVIEW OF ECONOMIC DEVELOPMENTS
IN THE MARCH 2004 QUARTER
The quarter just ended was characterised by a general improvement in the macroeconomic environment. This improvement included growth in the economy, a reduction in the quarterly inflation to less than 2.0 per cent, stability in the financial markets and the attainment of the fiscal target.
Core inflation for the quarter was
estimated at 1.1 per cent, representing a decrease relative to the 2.2 per cent recorded in the previous quarter. The level of core inflation in the review quarter is consistent with the Central Bank's medium-term objective of underlying inflation of approximately 4.0 per cent per year.
The economy is estimated to have grown in the range of 2.1 per cent to 2.3 per cent for the fiscal year 2003/04, with growth in all sectors except agriculture, and boosted largely by significant growth in mining and tourism.
RECENT DEVELOPMENTS AND OUTLOOK
Looking forward, challenges remain, and the fact that the Jamaican economy is small and open means that there is always the need to be prudent in how we manage our affairs, and to be mindful of trends in the international economy that can affect us.
However, with all this in mind, the bank remains cautiously optimistic that the positive macroeconomic performance in the March quarter will continue into Financial Year 2004/05. As long as the fiscal position continues to improve and stability persists in the financial markets, the economic outlook for the fiscal year is for lower inflation, lower interest rates, and a continuation of economic growth.
Continued stability in the financial markets is predictated on expectations of adequate foreign exchange flows and the continued efficient management of liquidity in the domestic market.
Growth in the domestic economy is being projected in the context of stronger growth in the world economy, which is expected to stimulate demand for exports such as tourism and bauxite/alumina. In addition, the present level of investor confidence augurs well for the continuation of investment flows.
Growth in the mining sector is predicated on the increasing demand for aluminium in a context of the expansion in capacity in the industry, while growth in tourist arrivals in the quarter could be in excess of 10.0 per cent. In fact, data from the Jamaica Tourist Board indicate that airport arrivals in April were approximately 18.0 per cent above those for April 2003.
With the positive developments in the economy, the focus of monetary policy at this time will continue to be the lowering of interest rates and moderation of inflationary expectations.
