News Release
18 February 2004
Quarterly Press Briefing
Derick Latibeaudiere
Governor
Good morning, ladies and gentlemen.
Despite the several challenges facing the nation, the first quarter of 2004 has started on a largely
positive note for the economy.
You would have noticed that the Bank lowered interest rates on Monday (16 February 2004).
This is the tenth time that the Bank has cut its rates since April 2003. Monday’s reduction was the
fourth in this quarter. This trend underscores the Bank’s stated commitment to the general
lowering of interest rates.
I should remind you that from time to time, the Bank is forced to temporarily raise interest rates in
response to adverse market conditions. This was last done in March 2003.
I am pleased to say that the resumption of interest rate reductions by the Bank has been
facilitated by sustained confidence and stability in the financial markets. The stability in the
foreign exchange market in the December quarter has continued into this quarter. Continued
buoyancy in tourism earnings, an adequate level of reserves, and moderate Jamaica Dollar
liquidity have been the main factors stimulating and influencing the continued stability in the
foreign exchange market.
Outlook - challenges
With respect to inflation, the Bank is expecting a further moderation in this quarter.
Seasonally, inflation has been lower in the March quarters given the pattern of domestic
agricultural production. However, some inflationary impulses could emanate from increases in
global commodity prices and upward adjustments in some administered prices.
We are also faced with the uncertainty in the international crude oil market, which continues to be
a threat to lower domestic prices. The possible impact of the second round effects from higher oil
prices is also of concern. Additionally, core inflation may not normalize as quickly as we expected
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due to stronger than anticipated real growth in currency demand, emanating in part from liquidity
that was injected in December.
We therefore expect headline inflation to be approximately 1.0 per cent for the quarter,
significantly lower than the 3.4 per cent in the December quarter, but above the minus 0.4 per
cent recorded in the corresponding quarter of last year.
For the fiscal year we are projecting inflation in the range of 14.5 per cent to 15.5 per cent. This
assumes continued relative stability in the exchange rate and the continuation of the downward
trend in core inflation.
As much as the prevailing conditions will permit, the Central Bank will continue to effect monetary
policy so as to reduce underlying inflation and inflationary expectations.
Previous quarter- challenges and actions
I will now review the predominant factors in the previous quarter.
The major challenges to monetary policy in the last quarter were the strong demand from
government for domestic financing and the tight Jamaica Dollar liquidity conditions that prevailed.
Interest rates in the private money market fluctuated widely in response to the tightening liquidity
conditions. However, by the end of December, these interest rates were responding favourably to
the Central Bank’s downward signal. The Bank lowered rates on its longer-term open market
instruments on December 10, 2003. This occurred within the context of generally improved
conditions in the financial markets.
Turning to inflation - core inflation was estimated at 2.0 per cent for the review quarter, marginally
lower than the 2.3 per cent estimated for the previous two quarters.
Headline inflation for the December quarter was 3.4 per cent. This was lower than the 4.6 per
cent recorded for the previous quarter, and higher than the Bank’s forecast of 2.5 per cent. For
the fiscal year to December inflation was 14.6 per cent, or 8.0 percentage points above that
recorded for the corresponding period of the previous year. For the calendar year inflation was
14.1 per cent relative to the 7.3 per cent recorded in 2002. The main factors influencing the
inflation outturn for the review quarter were the seasonal high demand for domestic agricultural
products, an 11 per cent increase in the national minimum wage, and a steady increase in the
price of international commodities.
With regard to the foreign exchange market there was relative stability in the December quarter
except for a period of instability in October during which the Bank sold foreign exchange to
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augment supply in the market. In this context, the weighted average selling rate depreciated by
1.5 per cent in the review quarter relative to 3.3 per cent in the corresponding quarter of the
previous year.
Additional issues
I would like to mention an issue that has recently become topical. This has to do with the question
of a Monetary Policy Committee for Jamaica. You will notice that the quarterly report provides
some background information on the subject. I hope you will find this useful.
Monetary Policy Committees can significantly enhance the effectiveness of monetary policy.
However, for this to be achieved, there are important pre-conditions that must be established.
International precedent has demonstrated that the two most important pre-conditions are an
independent central bank enshrined in law, and the absence of fiscal dominance.
Conclusion
Ladies and Gentlemen, in the face of our opportunities as well as our challenges, we must all be
committed to making extraordinary efforts to improve our economic and social conditions.
In this regard, the Government’s renewed commitment to eliminate the fiscal deficit by fiscal year
2005/2006 is a commitment in the right direction. So also is the current spirit of cooperation
between the unions, the private sector, and the government.
The task of building an economy that we can all be proud to call our own is not easy but we must
all be committed to sharing in that task.
Thank you.
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