BOJ forecasts cost of living improvement
KINGSTON, Jamaica, November 11, 2011- Governor of the Bank of Jamaica (BOJ) Brian Wynter said cost of living pressure is likely to continue to ease during the December 2011 quarter.
He said economic growth could accelerate during the period, while inflation is projected to be between one and two per cent.
This forecast is “predicated on low imported inflation, a continued decline in inflation expectations and stable domestic capacity conditions,” the BOJ governor said in the latest Quarterly Monetary Policy Report, for the period ending September 30.
“The outlook for inflation for both the December quarter and the fiscal year has incorporated a projection for the seasonal increase in demand pressure in the foreign exchange market. This should mainly reflect the usual lower net private capital inflows,” he explained.
Wynter further noted that the demand for foreign exchange to facilitate current account transactions should abate given the expected moderation in commodity price increases and the seasonal increase in tourism flows.
“In this context, the Bank will intervene, as necessary, to smooth supplies in the market and ensure orderly movement in the exchange rate. However, gross reserves will remain comfortably above the international benchmark of 12 weeks coverage of projected imports of goods and services,” he declared.
With respect to the country’s economic performance during the review quarter, Wynter stated that the bank’s estimates indicate that there was continued real economic growth in the review quarter, “albeit at a slower pace than the two previous quarters."
He said that the economy is estimated to have grown 0.0 per cent to 1.0 per cent, relative to average quarterly growth of 1.8 per cent for the first half of the calendar year.
Wynter observed that the expansion in the September quarter reflected growth in both tradable and non-tradable industries, in particular mining and quarrying and construction.
He anticipates that growth will gather momentum in the December quarter, relative to the previous quarter, “… the economy is expected to grow in the range 1.0 per cent to 2.0 per cent in the quarter."
He said that the projected expansion will be driven by growth in mining and quarrying, hotels and restaurants, construction and agriculture, forestry and fishing.
"These sectors are also expected to be the main growth poles for the fiscal year, which is still expected to reflect output growth in the range of 1.0 per cent to 2.0 per cent,” he predicted.
Wynter cautioned that there were risks to the Bank’s projections for both inflation and economic growth.
"Adverse weather conditions could derail both forecasts, while an unfavourable international environment could depress economic growth, but lead to a better-than-expected inflation outturn. In addition, the persistence of weak domestic demand could also lead to lower output, but a more satisfactory inflation rate,” he commented.
He however noted that improvements in the global economy could lead to sharper increases in commodity prices, hence higher-than-expected inflation, but could spur increased demand for Jamaican goods and services.