Many of Jamaica’s business class are up in arms about the recent increase in the Bank of Jamaica’s interest rate.

They feel it will be an impediment to growth, raise the cost of credit and will stymie the economy.
In short, it will hurt the business community.

The Governor of the Bank of Jamaica, Richard Byles, has continually insisted that inflation must fall within that four to six per cent range and that every effort must be made to cushion most Jamaicans from the ravages of high inflation, hence the need to dampen demand.

A statement from the BOJ on Thursday evening read in part: “Bank of Jamaica is announcing its unanimous decision to increase the policy interest rate (the rate offered to deposit-taking institutions on overnight placements with BOJ) by 50 bps to 6.50 per cent per annum, effective 30 September 2022. The Bank also decided to continue pursuing other measures to contain the Jamaican dollar liquidity expansion and to maintain relative stability in the foreign exchange market. To ensure that individual depositors are encouraged to continue to save in Jamaican dollars, Bank of Jamaica is also considering further measures to support upward movements in DTIs’ deposit rates.The Bank’s current decision has resulted in a cumulative increase in the policy rate of 600 bps since October 2021. These interest rate adjustments, in conjunction with the Bank’s decisive actions in the foreign exchange market over the period to date, have contributed to maintaining stability in the foreign exchange market. Without these actions, imported inflation and hence the final prices faced by Jamaican consumers would have been higher. The Bank’s gross reserves have remained comfortably above the level considered adequate, reinforcing its ability to support the foreign exchange market as needed. At 27 September 2022, Jamaica’s grossreserves amounted to US$4.3 billion, representing approximately 125.6 per cent of the projected IMF’s Assessing Reserve Adequacy (ARA) measure for FY2022/23.“

DEVALUATION, RISING INFLATION WOULD HAVE SEVERE IMPLICATIONS

Core inflation for the month of August was 8.3 per cent which was higher than the figure posted for July.

The Bank of Jamaica has sought to shore up the local dollar, aware of the fact that continued devaluation combined with rising inflation would have severe implications for many Jamaicans.

Is the business community impervious to the BOJ’s moves to act as a shield?

The President of the Jamaica Manufacturers and Exporters Association (JMEA), John Mahfood remains indignant, proclaiming that he is losing confidence in the Central Bank and how it makes its decisions.
Mahfood along with other manufacturers maintain that the continuing hikes are hurting businesses and that costs will have to be passed on to consumers.

The aim they say should be to spur growth by demand and consumer spending.

Chair of the Economic Policy Committee of the Private Sector Organisation of Jamaica (PSOJ) Dr Adrian Stokes is cautioning that with an already tepid economy and slowdown in the US, the rate increases are particularly pernicious and will ensure Jamaica will not fully recover by early next year .He says particular attention should be paid to the lag effect of these hikes which now sees interest rates at a 10-year high.

Stokes is of the view that the focus is concentrated on taming inflation with a lack of attention paid to restrained growth.

Earlier this week, the PSOJ  implored the BOJ not to increase its benchmark policy rate.

“While the Jamaican economy has shown resilience as evidenced by the latest quarterly GDP growth numbers of 5.7 per cent, the private sector is concerned that further tightening of monetary policy by the BOJ would slow domestic demand to levels which would put Jamaica’s growth prospects of 2.5 to 4.5 per cent of 2023 at risk,”read a PSOJ statement.

While the business community may be upset about the increases, the fact remains that inflation is at around 10 per cent, way above the four to six per cent level the BOJ is aiming for.

A devaluating Jamaican dollar twinned with escalating inflation would be calamitous for most Jamaicans.
Unlike the developed countries, Jamaica does not have cushioning mechanisms that brace the impact of double-digit inflation not to mention that it is extremely import dependent.

Before it went ahead with another rate increase the BOJ did presage: “The bank believes these conditions have not sufficiently solidified to ensure that inflation is sustainably on a downward path. There remain significant risks of reversal.”