Keith Collister, Business Writer

The Bank of Jamaica at Nethersole Place on the Kingston waterfront, has been teasing down interest rates by lowering the rates to dealers on its open market instruments. - FILE

In a highly bullish press briefing on the state of the economy, Finance Minister Dr. Omar Davies said "further moderation of monetary policy" was likely in the near term, having pointed to positive movements in all major economic performance indicators, a likely signal that the downward pressure on interest rates would be sustained.

The Bank of Jamaica had already removed the special deposit requirement for the commercial banks, and cut interest rates three times between May and Sept-ember, Davies said.

The central bank's rates to dealers are now at 11.95 per cent to 12.3 per cent.

The minister particularly emphasised the importance of the steady decline in inflation 12-month point to point high of 19 per cent on September 2005 to 6.5 per cent at the end September 2006.

Davies also forecast single digit inflation for both the full calendar and fiscal year, barring shocks.

Major influences

The major influences behind the decline were tempered agricultural price movements and a fall in oil prices. Calendar year inflation to date has also fallen sharply to 5.5 per cent, relative to 11.8 per cent for the corresponding period last year.

A key factor in the fall in interest rates and inflation was the stability of the foreign exchange market, which had depreciated only 0.8 per cent in the first half of fiscal year 2006/07.

The minister attributed this stability to strong inflows from tourism, remittances, and foreign direct investment.

Of particular note was the 21 per cent rise in tourism expenditure to US$895.5 million for the first half of this fiscal year on the back of a 20.9 per cent rise in visitor arrivals.

Net international reserves at the end of September of US$2.34 billion were "more buoyant than anticipated," exceeding programme target by US$264.2 million.

Describing it as a 'continuing myth' that the NIR had been built by borrowed money, the minister advised that the Finance had not sold the Bank of Jamaica the US$250 million raised earlier this year by way of a 30 year Eurobond, but was instead using it to pay down its foreign debt.

The fiscal deficit for April to August was 25 per cent lower than projected at $16.98 billion, primarily due to capital expenditure being below budget under a slower pace of implementation of some government projects.

Tax revenues were a slight 1.2 per cent below target, but the Minister still praised the effectiveness of the 'Accounts Receivable Project', which has a target to collect $10 billion in arrears, and noted that revenue growth had been less than anticipated partly due to problems in cement supply earlier in the year that forced government to strip the product of duty as incentive to importers to bring in supplies.

Responding to questions on the efficiency of the new Memorandum of Understanding (MoU) with the unions, the minister noted that his view was not one of "high philosophy" but that it was a better alternative than dealing with 27 separate bargaining units.

Davies said overall the final wage settlement was above his initial projections, but said the higher cost would be partially offset by the settlements being reached later than anticipated.

The minister said he had not fully quantified the added cost of the wage packages, but said he would need more vibrant flows of tax revenues to finance the government's paybill.

- business@gleanerjm.com