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An overhead view of a section of New Kingston in Jamaica (File photo)

Business leaders pessimistic about Jamaican dollar value

An overhead view of a section of New Kingston in Jamaica (File photo)

In October, the Statistical Institute of Jamaica (STATIN) conducted a survey among businesses, on behalf of the Bank of Jamaica, to ascertain the expectations which are likely to have an impact on inflation in the near-term. 

An aerial view of New Kingston, Jamaica. (Photo: wikicommons)

In this regard, the latest survey captures the perception of chief executive officers, managing directors and financial controllers about the future movement of prices, current and future business conditions, and the expected rate of increase in wages/salaries.

Based on the findings of the survey, company heads are not confident that the Jamaican dollar will appreciate in value over the next 12 months, although some gains are expected over the Christmas to New Year period.

In the October 2020 survey, the exchange rate was anticipated to appreciate by 0.9 per cent and depreciate by 0.2 per cent and 0.3 per cent for the three-month, six-month, and 12-month time horizons, respectively. 

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

This represents a much slower pace of depreciation for the six-month and 12-month time horizons of the previous survey. 

Respondents anticipated appreciation over the three-month time horizon but expected depreciation over the six-month and 12-month time horizons.

The BOJ said that the Present Business Conditions Index reflected a lower level of optimism while the Future Business Conditions Index illustrated a sharp increase in optimism compared to the previous survey.

These responses will assist the central bank in charting future policy decisions. The most recent survey was conducted between 5 October 2020 and 30 October 2020 and had 305 respondents. 

The October 2020 survey indicated expected inflation of 6.3 per cent for calendar year 2020, which is higher than the October 2020 CPI outturn of 5.0 per cent.

The expected inflation for 12 months ahead decreased to 6.7 per cent relative to the previous survey outturn of 7.0 per cent.

Based on the findings of the survey, company heads are not confident that the Jamaican dollar will appreciate in value over the next 12 months, although some gains are expected over the Christmas to New Year period. (File photo)

The perception of inflation control declined slightly in the October 2020 survey relative to the September 2020 survey. Respondents anticipate that the currency will appreciate over the three-month time horizon but depreciate over the six-month and 12-month time horizons at a slower pace relative to the previous survey.

The majority of respondents continued to believe that the BOJ’s policy rate will remain the same over the next three months. 

Perception of Inflation Control Businesses’ perspective of the authorities’ control of inflation fell slightly in the October 2020 survey. This was largely due to a decrease in the proportion of respondents who were “satisfied” with how inflation is being controlled. 

Additionally, there was an increase in the proportion of respondents who were “neither satisfied nor dissatisfied” with how inflation is being controlled. 

In the October 2020 survey, the majority of respondents expected that the Bank’s policy rate would remain the same over the next three months. This proportion increased relative to the previous survey. With regard to the financial sector, the majority of respondents expected that the Bank’s policy rate would remain the same. 

Furthermore, responses from the financial sector revealed that 39.1 per cent of respondents expected the rate to be marginally higher. This represented an increase relative to the October 2020 survey.

The Present Business Conditions Index decreased to 24.6 relative to 37.9 recorded in the previous survey. 

However, the Future Business Conditions Index increased sharply to 128.2 relative to 115.3 in the previous survey. 

The decrease in the Present Business Conditions Index reflected an increase in the number of respondents of the view that conditions are “worse”. 

The outturn for the Future Business Conditions Index mainly reflected an increase in the proportion of respondents who believe that conditions will be “better”. 

Expected Increase in Operating Expenses Respondents indicated that they expected the largest increase in production costs over the next 12 months to emanate from wages and salary, fuel and transport and stock replacement. The cost of utilities is anticipated to be the least likely to increase.