Wednesday, November 14, 2012

Jamaica holds rate steady amid anxieties over IMF talks

    The central bank of Jamaica held its policy rate steady at 6.25 percent, but said it would have cut its rate if it were not for global uncertainties that that fueled anxieties and lead to a further fall in its international reserves.
    The Bank of Jamaica, which has held its benchmark 30-day certificate of deposit rate steady since August 2011, said negative expectations during the last quarter stemmed from anxieties over talks with the International Monetary Fund (IMF) along with worries over global growth and the euro area's debt issues.
    "In the absence of these uncertainties, the Bank would have been obliged to consider further reductions in its policy rate," the bank said in a statement, adding:
    "It is possible that increased geopolitical tensions, adverse weather and stronger than anticipated global growth could lead to higher prices for international commodities and consequently higher domestic inflation."
    Uncertainties in the domestic economy was reflected in demand pressure in the foreign exchange market and increased investor preference for short term domestic instruments. The Jamaican dollar fell 1.4 percent against the U.S. dollar in the third quarter, following a 1.6 percent decline in the second quarter, despite net sales of $US 214.8 million by the central bank to satisfy pent-up demand for foreign currency to finance trade. 
    The stock of gross international reserves amounted to $2.1 billion, or 14.1 weeks of imports, more than adequate to meet the central bank's requirements, and the central bank said it was optimistic that an agreement with the IMF would have a positive impact on market confidence and foreign exchange flows.

    The Bank of Jamaica said it was still assessing the impact of Hurricane Sandy and a greater than expected impact could alter the forecast for inflation while the persistence of weak domestic conditions would contribute to a more favourable inflation picture.
    In the third quarter, headline inflation was 2.1 percent and the central bank is forecasting inflation of 3-4 percent for the final quarter with Hurricane Sandy having a net impact of about 0.7 percentage points.
    Despite the higher inflation in the December quarter, the Bank of Jamaica has revised downwards it forecast for 2012/13 to a range of 7.5-9.5 percent from a previous forecast of 10-12.0 percent due to a lower-than-expected pass though of tax measures and lower-than-expected international commodity prices.
    Jamaica's economy is forecast to have contracted by 0.7-1.7 percent in the December quarter due to the impact of Hurricane Sandy on Jamaica's economy and on tourism, with visitors from the U.S. East Coast accounting for almost 19 percent of visitors from the U.S.
    "The Bank is expecting a marginal rebound in economic activity in the March 2013 quarter which will contribute to real GDP growth for FY2012/13 being relatively flat in the range of 0.0 to minus 1.0 per cent," the central bank said.


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