Policy interest rate increase working, says Byles

Governor of the Bank of Jamaica (BOJ), Richard Byles is crediting the BOJ’s policy of raising interest rates over the past ten months, with keeping the Jamaican dollar stable.

The BOJ has raised its policy rate by 450 basis points since October 2021 from 0.5 percent per annum to 5 percent per annum. The US dollar has been trading between the $154 to $156 range since that time.

Speaking on Taking Stock with Kalilah Reynolds, Byles noted that stabilising the exchange rate helps curb inflation. According to the Statistical Institute of Jamaica inflation between April 2021 and April 2022 was 11.8 percent.

“When we raise our policy rates, what this does is it makes Jamaican dollar deposits more attractive versus a US dollar deposit. What that does is restrain the appetite of people to take Jamaican dollars, buy US dollars and then invest,” he said.

He said that doing this takes a lot of pressure off the exchange rate and off the foregin exchange market, which in turn helps to dampen inflation.

Byles added, however, that the Bank is very conscious of raising the rates to a point that negatively affects the economy.

“We are very sensitive to making rates too high. We’re walking a tight line between not discouraging the continued recovery of the economy and at the same time trying to keep inflation as low as we possibly can,” he said.

“I can’t say to you that it’s an easy choice we make each month, it’s not. There is a lot of debate and there is a lot of concern about the effect that we can have on the economy,” he added.

Keeping an eye out

Meanwhile, Byles doubled down on his belief that Jamaica is not at risk of a recession, however, he is acknowledging that the situation is constantly changing and the global outlook is dismal.

“The chances of growth slowing and international recession are picking up and it’s something that we watch very carefully, not just monthly but weekly,” he said.

He pointed to the war in Eastern Europe and the continued COVID-19 pandemic as variables that could impact the local economy. He said that while economists have speculated about a recession in the United States, he said he believes the US will be able to record positive growth this quarter.

A recession is generally defined as two consecutive quarters of negative economic growth, of which the US has already recorded one.

Among other things, Byles highlighted industries such as tourism and bauxite as areas in which Jamaica’s economy still has a lot of room for growth.

“Remittances remain 40 percent ahead of where they were pre-pandemic and what that does is put more purchasing power in the hands of the ordinary Jamaican,” he said.

“We’re seeing our unemployment rate at the lowest it’s ever been. We’re seeing GDP (gross domestic product) growth in the quarter ending December 2021, being even stronger than the quarter ending September last year,” he added.

The Governor said that the Central Bank is paying keen attention to these signals and they have so far remained positive.

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Sashell Williams2024-09-03T21:40:31-05:00