More businesses in Jamaica are optimistic about business conditions improving in the country even with the downturn in the economy caused by the global pandemic.
The latest survey on Businesses’ Inflation Expectations, which was executed last month showed a slight increase in the Present Business Conditions Index, which increased to 28.7 relative to 24.6 recorded in the previous survey. Moreover, the Future Business Conditions Index increased to 138.5 relative to 128.2 in the previous survey.
The increase in the Present Business Conditions Index reflected a decrease in the number of respondents of the view that conditions are “worse”. The outturn for the Future Business Conditions Index mainly reflected an increase in the proportion of respondents who believe that conditions will be “better”.
The survey, which is carried out by the Statistical Institute of Jamaica (STATIN) on behalf of the Bank of Jamaica (BOJ) seeks to ascertain the expectations of economic agents about variables, which are likely to have an impact on inflation in the near-term. In this regard, the survey captures the perception of Chief Executive Officers, Managing Directors and Financial Controllers about the future movement of prices, current and future business conditions and the expected rate of increase in wages/salaries.
These responses assist the Central Bank in charting future policy decisions. The most recent survey was conducted between November 2, 2020 and November 30, 2020 and had 338 respondents.
Perception of inflation control
Businesses’ perception of the government’s control of inflation improved in the November 2020 survey. This was largely due to an increase in the proportion of respondents, who were “satisfied” with how inflation is being controlled.
Additionally, there was a decrease in the proportion of respondents who were “dissatisfied” with how inflation is being controlled. As it regards exchange rate expectations, respondents anticipated depreciation over all three time horizons.
In the November 2020 survey, the exchange rate was anticipated to depreciate by 1.7 per cent for the 3-month time horizon, 2.5 per cent for the six month time horizon and 3.0 per cent for the 12- month time horizons. This represents a much faster pace of depreciation for all three time horizons relative to the previous survey.
Respondents in the October 2020 survey expected the rate to appreciate by 0.9 per cent and depreciate by 0.2 per cent and 0.3 per cent over the 3-month, 6-month and 12-month time horizons, respectively.
Interest rate expectations
In the November 2020 survey, the majority of respondents expected that the BOJ’s policy rate, which is the benchmark interest rate, would remain the same over the next three months. This proportion decreased marginally relative to the previous survey.
With regard to the financial sector, the majority of respondents expected that the BOJ’s policy rate would remain the same. Furthermore, responses from the financial sector revealed that 18.5 per cent of respondents expected the rate to be marginally lower.
This represented an increase relative to the October 2020 survey. With respect to inflation expectations, the November survey highlighted respondents’ expectation for inflation for calendar year 2020 of 6.0 per cent. This expectation was above the annual point-to-point inflation of 4.3 per cent for November 2020. Respondents’ expectation of inflation 12 months ahead decreased to 6.4 per cent, from the previous survey’s estimate of 6.7 per cent