Jamaica
News - Real Estate - Economy
Source: The Jamaica Observer, Al Edwards, February 18, 2007
Inflation
for 2006 was the lowest in 26 years
The ability to contain inflation has proven to be
one of the bright spots of the Jamaican economy. For the December quarter,
headline inflation was 0.3 per cent, well below the average increase of 2.9 per
cent for the last 5 December quarters. With this out-turn, headline inflation
for the calendar year 2006 was 5.8 per cent. This compares with 12.9 per cent
for 2005.
The inflation for 2006 was therefore the
lowest for a calendar year since 1981.
So declared governor of the Bank of Jamaica (BOJ)
Derick Latibeaudiere at his Quarterly Press Briefing held at the BOJ's
Nethersole Place headquarters last week.
Explaining this good news, Latibeaudiere said:
"The inflation out-turn for the calendar year benefited from the sharp
reversal in international oil prices and lower prices for agricultural
commodities in the second half of the year, and more-so in the review
quarter."
Indeed, crude oil prices fell by 14.8 per cent to
an average of US$60 per barrel in the December quarter - the sharpest decline in
oil prices since the June 2003 quarter.
At the same time favourable weather conditions
contributed to increased supplies and lower prices for agricultural commodities,
particularly starchy foods. The quarter under review also saw monetary impulses
well contained and the foreign exchange market remained stable.
Looking to the rest of the year, the Governor
forecasted, "We estimated core inflation at 0.5 per cent for the quarter
and 3.3 per cent for the calendar year. This is in line with the BOJ's
medium-term trajectory for maintaining annual core inflation below 4.0 per
cent."
Going forward, the BOJ expects headline
inflation to be in the range of 0.4 per cent - 1.4 per cent for the March 2007
quarter.
"For the fiscal year therefore, we expect
headline inflation to be between 6.0 and 7.0 per cent.
Foreign Exchange Market
At the end of last year, the governor presided
over falling inflation and a stable foreign exchange market characterised by a
Jamaican dollar that showed no signs of impending volatility. He seemed after
years to have reached the top of the mountain after a Herculean effort.
However, he has always cautioned that the task
now is to maintain this newfound position.
Inflows to the foreign exchange market in the
quarter were bolstered by the growth in receipts from private transfers and
tourism. In addition, there was lower demand for foreign currency to facilitate
payments for imports relative to the September quarter.
Come the start of the year there has been a
noticeable fall in the value of the Jamaican dollar with the BOJ increasingly
having to take intervention measures. The Governor doesn't seem unduly perturbed
and explained why.
"Against the background of positive economic
fundamentals, we have no reason to believe that the recent bout of instability
in the foreign exchange market in January will result in any major
disequilibrium in the market. Information suggests that the demand pressures
could have been due to portfolio switching in view of limited domestic financial
assets.
Additionally, there was some exceptional
demand from the energy sector as well as demand from some authorised dealers who
might have been trying to cover temporary short positions.
"As you would have noticed, the Central Bank
acted decisively to quell the demand pressures by selling foreign currency to
the market as well as by offering Jamaica Dollar instruments to absorb the
excess liquidity in the system. We will continue to monitor the markets and act
pre-emptively where necessary."
The stock of net international reserves
remained strong at over US$2.32 billion at the end of the quarter. Gross
reserves at end-December were in excess of US$2.4 billion representing 18.1
weeks of projected imports of goods and services.
For the March quarter, the BOJ is expecting that
both the money and foreign exchange markets will remain fairly stable. The BOJ
is also forecasting higher inflows from other export receipts and a decline in
demand for foreign exchange to effect payments for imports.
For the March 2007 quarter, the BOJ's forecast
indicates that the economy will expand at a faster rate than for the previous
three-quarters. Construction, mining, tourism and agriculture will largely drive
growth.
The Governor concluded: "The Central Bank is
committed to low and stable inflation. This means containing demand in line with
the country's productive capacity. The process involves the Central Bank, the
government, the private sector and the workers.
"The Government must continue to improve
the management of the fiscal accounts and the private sector and workers must be
committed to a sustained increase in productivity. As partners in the effort to
sustain growth and development, we must all ensure that we meet our end of the
bargain."
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