CBR
search

Bank of Jamaica holds policy rate at 0.5 per cent

  • Robust grown in business and consumer lending

The Bank of Jamaica (BOJ) said it will hold its policy interest rate at 0.5 per cent per annum, effective today Thursday, February 20.

The Bank of Jamaica in downtown Kingston, Jamaica (Photo: Jamaica Observer)

The BOJ’s policy rate represents the rate at which it offers to Deposit-Taking Institutions (DTIs) for overnight placements made with the bank. The BOJ sets its policy interest rate so as to ensure that the yearly rate of increase in consumer prices (i.e. inflation) is within the 4.0 per cent to 6.0 per cent target set by the Government.

The decision to hold the policy rate unchanged reflects the BOJ’s continued view that monetary conditions are generally appropriate to support inflation remaining within 4.0 per cent to 6.0 per cent and a faster pace of economic growth. Loans provided to the private sector by banks are growing at a very robust pace, particularly to the productive sector.

“…we believe inflation will average slightly below 5.0 per cent over the next eight quarters and why we have kept the accommodative monetary policy in place.”

– BOJ Governor, Richard Byles

The BOJ says alternative means of financing such as corporate bonds and equities continue to grow. As a result the BOJ says it will therefore continue to closely monitor the trends in credit from banks, capital market transactions, overall economic activity and, most importantly, inflation, to determine the future path for the policy rate.

The next policy decision announcement date is March 27. In justifying the decision to hold the policy rate BOJ Governor, Richard Byles today pointed to a number of factors influencing this monetary policy decision.

Byles said a 20.3 per cent growth in credit by DTIs to businesses for the 12 month to December 2019, while credit provided to households increased by 16.5 per cent. “This growth was notable faster than the expansions of 15.4 per cent and 12 per cent in credit to businesses and households respectively, which was recorded in 2018,” Byles said.

BOJ Governor, Richard Byles

In addition to loans from DTIs, the BOJ Governor said it is encouraging that a number of firms are obtaining financing from the issue of corporate bonds and equity. According to Byles, “this buoyancy in credit growth has been reflected in the headline Gross Domestic Product (GDP) numbers, partly because of the recent fall out in mining and agriculture. However, non-mining GDP, which abstracts from the difficulties experienced in the mining sector, is trending upwards from 1.1 per cent for the September 2018 quarter to 1.4 per cent for the September 2019 quarter.”

This accelerations, he posits is being buoyed by marked increases in tourism and manufacturing. Additionally an important lending indicator of economic activity, GCT tax inflow, which suggests continued economic expansion.

Nonetheless, the BOJ Governor admits that the economic expansion remains below the economy’s capacity and “it is largely for this reason that we believe inflation will average slightly below 5.0 per cent over the next eight quarters and why we have kept the accommodative monetary policy in place.”