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Bank of Jamaica monitoring consumer spending for inflation impact

Governor of the Bank of Jamaica (BOJ), Richard Byles, said the institution was carefully watching consumer spending driven by loosening credit by financial institutions to determine its impact on inflation.

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

Currently, the BOJ has an inflation target of 4.0 per cent to 6.0 per cent over the next eight quarters. “As you are aware, the BOJ’s inflation target was set by the Government to facilitate a faster pace of economic growth while at the same time supporting the country’s ongoing debt reduction strategy,” Byles said today at the Quarterly Monetary Policy Report held at the BOJ headquarters in downtown Kingston.

“We note that higher inflation could also arise from stronger than anticipated domestic demand, driven by the improved credit conditions in the economy.” 

Governor of the Bank of Jamaica, Richard Byles. (File photo)

That said, he cautioned that consumer spending is not an immediate worry as, “businesses have an edge on the funds granted by lending institutions and so we are not seeing the type of demand that would lead to a rise in interest rates to cool inflation.” 

What’s more, he noted that “credit extended by deposit taking institutions (DTI) to businesses and households grew by 15.5 per cent between September 2018 and September 2019 broadly consistent with growth observed since the start of the year. In addition to loans from DTIs, firms have obtained financing from the issue of corporate bonds and equity.”

Byles said higher inflation could arise from stronger than anticipated domestic demand, driven by the improved credit conditions.

The BOJ is encouraged by the DTIs’ push to lend even more to small and micro enterprises, he said, adding that the expansion of credit will help to grow the economy.