The Bank of Jamaica has taken a number of initiatives to protect the Jamaican economy from the more negative impacts of COVID-19.
Speaking at a monetary policy press briefing held earlier today at its downtown Kingston headquarters, Governor Richard Byles pointed out that Jamaica’s response to the crisis has been remarkable in many respects.
He made it clear that the Central Bank will still maintain its inflation target of 4.0 per cent to 6.0 per cent over the next two years and, to that end, earlier this week announced the policy rate will be held at 0.50 per cent per annum.
“The Bank has also maintained this highly accommodative monetary policy stance to support a speedy economic recovery once this crisis has passed and we will continue to monitor and assess our stance as new developments emerge. Subject to inflation remaining well behaved, we intend to maintain this monetary policy stance until there are clear signs that economic activity in Jamaica is returning to pre-COVID levels,” said Byles.
The Bank of Jamaica has moved quickly to ensure stability in the financial sector by providing J$76 billion (about four per cent of GDP) in liquidity support. These included a bond-buying programme, a reduction in cash reserve requirements, the introduction of FX swap arrangements and B-FXITT intervention sales.
The liquidity provided via these methods exceeds US$1 billion since March.
“The Bank of Jamaica’s combined liquidity support in Jamaican and US dollars is substantial and unprecedented, equivalent to more than 11 per cent of GDP,” said Byles.
So what about the all important external accounts and the impact of the fallout in tourism flows?
There is talk that tourism is on the rebound but, with COVID-19 infections going up in both the United States and Europe and the case of a cruise ship in the Caribbean reporting infections, how likely is that?
The Bank of Jamaica expects that the current account deficit of the balance of payments will remain at sustainable levels of between two and four per cent of GDP over the next two years.
“This is better than previously expected, supported by stronger than expected remittance inflows, a dramatic fall in imports as well as lower levels of private capital outflows. As such, Jamaica’s reserves remain healthy, with net international reserves at end of October amounting to around US$2.9 billion,” commented Byles.
Looking at the all important foreign exchange market where the Central Bank has had to prop up with interventions on a number of occasions more recently, it notes that in the main supply has kept pace with demand despite the country’s reliance on tourism receipts.
Giving an overview of the foreign exchange market, Byles drew attention to the fact that the exchange rate appreciated for most of September and has depreciated since October.
“The annual average rate of depreciation at the end of October was 6.7 per cent which, although above the average depreciation of 2.6 per cent recorded last year, is arguably moderate under the circumstances.
“Between March and October, daily purchases of foreign currency by authorised dealers and cambios from end users averaged US$30.4 million, slightly lower than the average of US$33.4 million recorded last year. Shortfalls in the market have been met by BOJ B-FXITT sales of US$242.3 million since the onset of the crisis in March 2020,” said the Governor.
He gave his assurance that the Bank of Jamaica will maintain its accommodative posture in an effort to limit the adverse impact of shocks on the Jamaican economy and to support a sustainable economic recovery.