Monday 16 December, 2019

BOJ wants expansion in private sector credit

During the September 2019 quarter, Bank of Jamaica (BOJ) cut the policy interest rate by 25 basis points to a historic low of 0.50 per cent per annum.

The bank indicates in its most recent Quarterly Monetary Policy Report that this easing in the monetary policy stance is aimed at stimulating a pick-up in the rate of expansion in private sector credit.

Annual growth in total private sector loans and advances by deposit-taking institutions was 15.5 per cent at September 2019 relative to the growth of 16.2 per cent in September 2018 and 15.7 per cent in June 2019.

The central bank indicated that the growth in overall private sector loans and advances mainly resulted from an increase of 15.4 per cent in lending to the productive sector, albeit, lower than the 16.5 per cent growth recorded at June 2019.

The growth was primarily underpinned by lending to businesses in the distribution, professional and other as well as electricity industries, the BOJ said.

The central bank wants to see a faster pace of private sector growth.

It noted in the QMPR that the recent cut in interest rate should also, accordingly, lead to higher economic activity and support inflation within the bank’s target of 4.0 per cent to 6.0 per cent.

For the period under review – which is the quarter ending September 30, 2019 - annual inflation decelerated below the bank’s target band during the September 2019 quarter, recording 3.4 per cent at September 2019, down from 4.2 per cent at June 2019. This slowing mainly comes from lower energy and transportation prices, which was partially offset by higher agricultural food prices.

The BOJ projects that over the next eight quarters, inflation is projected to average 4.5 per cent before gradually approaching the mid-point of the target (5.0 per cent) in the medium term.

The forecast is mainly predicated on expectations for price adjustments, exchange rate depreciation and the lagged effect of previous monetary policy accommodation.

On a cautionary note, the bank says the outcome might be affected by falling crude oil prices.

The BOJ noted that the Jamaican economy is estimated to have grown in the range of 0.0 per cent to 1.0 per cent for the September 2019 quarter, at a slower pace relative to the 1.3 per cent recorded for the June 2019 quarter.

Over the next eight quarters, real GDP is projected to expand at an average quarterly rate in the range of 0.5 per cent to 1.5 per cent, lower than the previous projection.

The BOJ expressed the hope that accommodative monetary conditions, as well as increased competition in the market for loanable funds, will continue to support growth in overall financing in Jamaica.

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