The Bank of Jamaica (BOJ) has indicated the prospects for the Jamaican economy continue to be characterised by uncertainty, in its new Quarterly Monetary policy Report (QMPR).
Still, it is projecting a five per cent rate of inflation for the coming year, lower than previously projected.
Additionally, real GDP is still projected to contract between 10.0 and 12.0 per cent for FY2020/21, but recover partially in the next year.
Projections are in the context of a recent surge in COVID-19 cases domestically and internationally, as well as more stringent measures are taken by governments around the world to contain the virus spread.
Annual inflation accelerated to 5.2 per cent at December 2020 from 4.9 per cent at September 2020.
The BOJ states that this outturn mainly reflected the impact of increases in agricultural food prices and energy costs.
Over the next eight quarters, inflation is projected to average 5.0 per cent, lower than the average rate of 5.3 per cent previously projected.
The central bank anticipates inflation will rise in the range 4.0 to 6.0 per cent at March 2021, decelerate to between 4.0 to 5.0 per cent at June 2021 and then accelerate in the range 4.5 to 5.5 per cent at September 2021.
Inflation is projected to remain within the Bank’s inflation target of 4.0 per cent to 6.0 per cent over the medium-term.
The BOJ outlined that the Jamaican economy is estimated to have contracted in the range of 7.5 to 9.5 per cent for the December 2020 quarter, an improvement relative to the contraction of 10.7 per cent recorded for the September 2020 quarter.
There were estimated declines in the majority of the industries for the review quarter.
The BOJ said Jamaica’s current account of the balance of payments is anticipated to improve over the next eight quarters relative to the previous forecast.
This improvement is largely underpinned by an upward revision to the surplus on the services sub-account inflows to the country.
The Bank anticipates that the current account deficit of the balance of payments will average 2.8 per cent of GDP for FY2020/21 to FY2022/23, lower (better) than the previous forecast of 3.2 per cent of GDP.
Jamaica’s international reserves remain buoyant, with gross reserves at end-January amounting to approximately US$3.9 billion, representing 117.8 per cent of the Assessing Reserve Adequacy metric for FY2020/21.
The foreign exchange market has generally observed the continuation of two-way movements in the exchange rate, the BOJ stated.
The annual average rate of depreciation at end-January 2021 was 5.9 per cent, which, although above the average depreciation of 3.4 per cent recorded last year “is still moderate under the circumstances” the central bank stated.
Total BFXITT flash sale operations since the onset of the crisis in March 2020 to date has amounted to US$381.0 million.
The financial system has remained generally resilient throughout the pandemic. Both the primary ratio and capital adequacy ratio, which measures the capacity of banks to absorb unexpected losses, remained comfortably above their respective statutory minima.
“All banks have also remained well capitalised and in compliance with prudent liquidity standards,” the central bank stated in the report.
The BOJ said it is prepared to take all necessary actions to ensure that Jamaica’s financial system remains sound and well capitalised.