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Dated: 1 November 2002
Jamaica must go about doing its business forgetting about inflation and stop the indecisions because of inflation expectation. Jamaica should also stop the behavioural activities that put pressure on the exchange rate, otherwise the performance of the economy in the near-term will suffer.
Jamaica’s prospects depend critically on there being relative stability in the foreign exchange market and continuation of relatively low inflation expectations, Governor of the Bank of Jamaica Derrick Latebeaudiere has said.
He has also stressed that he would not allow any precipitous movements in the exchange rate, regarding such movements as only serving to undermine the economic strides the country has made, and lead to instability in a very fragile economy such as ours.
In addition, the containment of public sector demand will be important in contributing to a stable macroeconomic environment. The latter, to a large extent will be dependent on the pace of recovery in the real sector, which in turn will be influenced by developments in the world economy.
During the remainder of the calendar and fiscal years, the real sector is expected to register a more robust rate of expansion. In particular, the recovery in the December 2002 quarter is expected in the context of very weak performance in the December 2001 quarter, given the fall-out occasioned by the catastrophe of 11 September 2001, and the flood rains in the eastern parishes in October to November of the same year.
At the sector level, growth in the quarter will be influenced mainly by the performance of the mining, construction, basic services and miscellaneous sectors. It is however noted, that the recovery in mining and tourism is still being hampered by the continued sluggish recovery in the world economy, as fears of terrorist attacks still abound, the distrust of large corporations caused by the series of corporate malfeasance continues, and the implications of war with Iraq looms. The overall growth will also be constrained by the performance of the agricultural sector, which has suffered severe dislocation from the effects of poor weather conditions.
It is expected that, as there is a gradual return to normality in the agriculture sector and in the context of the present monetary conditions, the inflation rate for the December quarter will be in the range of 1.5 per cent to 2.1 per cent. Hence, the 6.0 per cent to 7.0 per cent inflation forecasted for both the calendar and fiscal years.
In the context of the challenges that may emerge from the high levels of liquidity in the system, the seasonal demand for currency and the possibility of renewed pressure on the foreign exchange market before the Christmas season, the bank is expected to maintain a tight monetary stance, reducing interest rates gradually, as the conditions in the market allow.
The mandate of the Bank of Jamaica is price and financial system stability, and Governor Latebeaudiere has said that the central bank would not allow any precipitous movements in the exchange rate. “Such movements only serve to undermine the economic strides we have made and lead to instability in a very fragile economy”, he said.
“The bank remains committed to the goal of fostering a stable economic environment that is conducive to sustainable growth. We cannot afford to lose the gains in macroeconomic stability that we have secured in recent years, and might I add, at tremendous costs to the people of Jamaica”, he said, adding, “the bank will continue to employ whatever measures we deem appropriate to avoid a return to rapid exchange rate depreciation and the resulting high inflation environment”.
The tight monetary stance is expected to be relaxed as more buoyant foreign exchange flows and further improvements in economic activity are realized. Over the medium term however, macroeconomic stability, which would facilitate a sustained reduction in interest rates, can only be secured through the containment of excess demand.
Let us support the stable exchange rate and low inflation as the corner stone for growth. Let us not take adverse positions and stay on the high moral ground.
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