By Al Edwards, Financial EditorTHE COUNTRY'S central bank, the Bank of Jamaica (BoJ), is remaining cautiously optimistic that the positive macroeconomic performance in the March quarter will continue into the remainder of the financial year.
Speaking yesterday at a press briefing held at its downtown Kingston headquarters to review the performance of the Jamaican economy during the period January to March 2004, the Governor of the BoJ, Derick Latibeaudiere, said 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.
"I am now pleased to report that the expectation for inflation at the quarter ended June 2004 is 2.6 per cent. On a monthly basis, inflation in June 2003 was 2.5 per cent. The expectation for June 2004 is 1.1 per cent. Our forecast is still to get single digit inflation. 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."
He said that the central bank was committed to lowering interest rates and to that end has already cut interest rates nine times this year and 15 times since March 2003.
The healthy state of the Net International Reserves (NIR) did not escape his attention and at current levels now stands at US$1.75 billion, the highest it has been since March 2002.
"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. Continued stability in the financial markets is predicated on expectations of adequate foreign exchange flows and the continued efficient management of liquidity in the domestic market. We have not seen the market this stable for a long time and we intend to keep it that way," the BoJ Governor added.
Despite the air of optimism, the country's burgeoning oil bill is, he said, is cause for concern more particularly because the country can do little about the increases on the international markets.
Addressing the question of the impact of rising oil prices on inflation, he said: "With oil prices at US$35 per barrel we could live with that, it's when we get into prices above that that we will run into problems. The question is, if the country's oil bill goes above US$1 billion, then how is the Jamaican economy going to pay for this? It is a legitimate concern. This is why the central bank will always try to hold more than adequate foreign exchange reserves. At a US$40 per barrel scenario it would mean maybe an incremental US$100 million on the oil bill and if it comes to the crunch, we could pay for it."
Yesterday benchmark U.S. light crude futures hit a peak of US$41 a barrel from Wednesday's $US40.77. Prices rose as concerns that Organisation of Petroleum Exporting Countries (OPEC) may not be able to meet the surge in demand fed by global economic expansion.
Mr. Latibeaudiere made it clear that 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.
