Bank of Jamaica (BOJ) Governor, Richard Byles, says the economy is projected to contract by 5.1 per cent for the 2020/21 fiscal year, consequent on the impact of the coronavirus (COVID-19) pandemic, but will bounce back in 2021/22 with growth in the range of 2.5 to 5.5 per cent.
He was speaking during the BOJ’s digital quarterly press conference on Wednesday (May 20).
Byles said the decline in economic activity is expected to be broad-based and will affect the hotel and restaurant sector; mining; wholesale and retail; transport, storage and communication; manufacturing and distribution, among others.
He noted that while the full intensity and duration of the pandemic cannot be determined at this time, “there are signs that the daily infection rates appear to be stabilising in some countries, suggesting that we may be approaching the global peak of the outbreak of new cases”.
“The Bank of Jamaica remains true to its core mandate of ensuring that inflation remains low, stable and predictable…”– Bank of Jamaica Governor, Richard Byles
“With these caveats, Bank of Jamaica’s baseline forecast assumes that the virus will be largely contained by end-June 2020 and that the global economy will gradually reopen thereafter,” he said.
Against this background, he said that economic growth in Jamaica is expected to resume by the first half of the 2021/22 fiscal year “as ports reopen, travel and tourism-related activities gradually resume, and related services and production in the other sectors of the economy are revived”.
He said the Central Bank remains confident that measures it has instituted, alongside the Government’s “aggressive” fiscal stimulus interventions, will serve to mitigate some of the impact wrought by COVID-19 “and set us on a path to economic recovery”.
Among the initiatives implemented by the BOJ is the lowering of the Jamaica Dollar cash reserve requirement for deposit-taking institutions (DTIs) by two percentage points to the statutory minimum of five per cent of prescribed liabilities, which was announced on May 15.
“This reduction, which is aimed at boosting liquidity levels in the financial system, became effective immediately and released approximately $14 billion to DTIs. Simultaneously, we reduced the foreign currency cash reserve requirement for DTIs by two percentage points to 13 per cent, which returned about US$70 million to DTIs,” Byles noted.
These are in addition to the BOJ removing the limits on the amounts that DTIs can borrow overnight, without being charged a penal rate; reintroducing a longer-term lending facility to DTIs for periods of up to six months; establishing a Government of Jamaica/Bank of Jamaica bond-buying programme; reactivating an intermediation facility to broker interbank lending, in addition to the Emergency Liquidity Facility that was initially established in 2015.
The BOJ also announced its decision to maintain the policy rate offered to DTIs on overnight placements at an historic low of 0.50 per cent.
Byles said the Bank is of the view that this stance is adequate to, among other things, keep inflation within the 4.0-6.0 per cent target range, while adding that “we will continue to review and assess our stance as time progresses”.
“For the current fiscal year, the point-to-point inflation rate is projected to be 4.5 per cent, while a slightly lower rate is projected for the next fiscal year. This forecast path is lower than our projection in February,” he pointed out.
In the case of the foreign exchange market, Byles noted that the Central Bank’s efforts have focused on encouraging orderly conditions and included raising the limit on the foreign currency net open positions of authorised dealers; direct sales to authorised dealers and cambios via the BOJ Foreign Exchange Intervention and Trading Tool (B-FXITT), as well as direct sales to the Jamaica Public Service Company and Petrojam; expanding the volume of foreign currency swap arrangements with authorised dealers; and providing a US dollar repo facility (US$170 million) to financial institutions.
“Foreign currency liquidity assistance provided to the financial market since the onset of the domestic crisis in March 2020, up to May 15, amounted to approximately US$338 million,” he noted.
The Governor said the initiatives were introduced to assist financial market stability over the past three months, adding that they have “centred on ensuring adequate liquidity in both the domestic and foreign exchange markets”.
“We are, and have always been, a resilient people. While the heightened challenges associated with the COVID-19 outbreak remain an ongoing concern… the Bank of Jamaica remains true to its core mandate of ensuring that inflation remains low, stable and predictable and, at the same time, is prepared to take all necessary actions to ensure that Jamaica’s financial system remains sound and well capitalised,” he added.