News Release
August 18, 2004
Governor’s Quarterly Press Briefing
Derick Latibeaudiere
Governor
Ladies and Gentlemen:
OIL AND INFLATION
At our last press briefing in May, I gave the assurance that despite the difficulty in lowering
inflation after the spike experienced in 2003, and despite the new challenges presented by
climbing oil prices, the Central Bank was committed to maintaining a downward trend in
inflation for this fiscal year.
Against that background, I am very pleased to report that inflation for the June 2004
quarter was 1.9 per cent, down from the 6.0 percent in the corresponding quarter in
2003, and lower than the 2.6 per cent we had projected for the period.
In fact, the inflation recorded for this quarter has been the lowest inflation out-turn for
a June quarter in the past six years.
This is especially significant because in recent years, the June quarter has become one of the
two quarters that usually shows the highest inflation figures, due to the influence of increases
in agricultural prices.
For the current (September) quarter headline inflation is expected to be in the range of 3.0 to
4.0 per cent reflecting higher domestic agricultural commodity prices, increased demand
associated with the holiday season, expenses for the new school year, and increased
electricity costs.
However, while the projected figure is higher than the out-turn for the June quarter, it
will still be below the 4.6 per cent recorded in the September quarter of 2003.
Ladies and Gentlemen, the continued uncertainty regarding the movement in
international oil prices is a major concern, and remains an issue that we will have to
monitor very closely.
But, as I said before, the Central Bank remains committed to its core mandate of low
inflation, and so far we believe that a return to lower levels of inflation is a trend that
should continue for the rest of this fiscal year.
DEVELOPMENTS IN THE JUNE 2004 QUARTER
I will now review some of the significant developments of the previous quarter.
All the macroeconomic indicators were generally favourable in the June 2004 quarter.
Core inflation was estimated at 1.1 per cent for the quarter, similar to that of the March
quarter, and comparing favourably with the 2.3 per cent that was estimated for the June 2003
quarter. The 12-month point-to-point rate of core inflation has declined consistently since
January 2004, and as a result, the medium-term forecast is in line with the target for
underlying inflation of 4.0 to 5.0 per cent per year.
The economy is estimated to have recorded growth during the June quarter, in most
economic sectors.
In the context of the relatively favourable macroeconomic environment that prevailed
particularly in the first half of the review quarter, the Bank was able to make three cuts to
the rates on its open market instruments. Consequently, at the end of the quarter, the rates
for the 30-day and 365-day instruments were 14.3 and 16.4 per cent, respectively. The
tendency toward lower interest rates is being replicated in placements in the money market,
and is consistent with both the stability in the foreign exchange market and the reduction in
inflation.
The foreign exchange market was relatively stable throughout most of the June
quarter, with some appreciation in the exchange rate in the first half of the quarter. Overall,
there was a marginal depreciation of 0.34 per cent in the value of the domestic currency for
the period. We should also note that the depreciation in the review quarter represents
the smallest quarterly movement since September 2001, when there was a depreciation
of 0.26 per cent.
The stability that prevailed in the foreign exchange market during the June quarter was
associated with continued confidence in the Jamaican economy, deriving largely from
improvements in the external and fiscal accounts. In particular, the economy continued to
benefit from strong foreign exchange inflows from tourism, remittances, and from exports
receipts. This was supplemented by the Government’s successful debt raising of US$125
million on the international capital market. There was also favourable reaction to the budget
presentation on April 15 by investors, as well as to the news of the better than targeted fiscal
performance for financial year 2003/04.
NEAR-TERM OUTLOOK
Looking ahead, there is the positive indication that the growth experienced over the past
eight quarters will continue in the September 2004 quarter. As was the case in the June
quarter, with the exception of Government, all sectors in the economy are expected to record
growth.
The better than targeted fiscal out-turn for the June 2004 quarter is expected to boost investor
confidence, which together with the continuation of high levels of investment is expected to
further stimulate growth in the domestic economy.
In spite of some concerns on the international horizon, we expect that the continued
expansion in the global economy and in international trade should continue to have positive
spin-offs for the Jamaican economy.
The major risk to our inflationary expectations continues to be the price of oil. The price of
grains on the world market is also a matter of concern as reports of worsening drought
conditions in western USA could lead to a reversal of the lower prices we saw in May and
June.
A further concern relates to the fact that the growth in the world economy has stimulated
increased demand for raw materials such as metals, chemicals and lumber. These factors may
contribute to global inflation pressures, which, given Jamaica’s high import propensity for
some of these goods, could adversely affect domestic prices.
In these circumstances the Bank will continue to be cautious in easing monetary policy,
and will continue to contain increases in the monetary base in order to ensure the
continuation of the downward trend in inflation.
Ladies and Gentlemen: I have ended with our commitment to reducing inflation - an
objective that we have never ceased to stress, for we understand the importance of low and
stable inflation in helping economic agents to plan in confidence for the growth and
development that we hope to sustain.
I look forward to having a lively discussion on the issues raised.
Incidentally I must draw your attention to the three special articles in this issue of our
quarterly report, which discuss Jamaica’s new relationship with the IMF, the Financial
Stability Assessment Programme, and Issues of Financial Stability. I hope that these articles
will provide useful reading.
Thank you.