Bank of Jamaica cuts interest rate

Effective November 23, the rate offered on overnight placements with the Bank of Jamaica (BOJ), will be reduced to 3.25 percent from 3.50 percent, the BOJ announced today.
The adjustment to rate, used by BOJ as the policy rate, reflects the Bank’s assessment that the inflation outlook for FY2017/18 and FY2018/19 will remain within its medium term inflation target of 4 percent to 6 percent.
Amongst the factors leading to the reduction include, “the recent appreciation of the exchange rate that has attenuated the upside risks to the inflation forecast. This outlook is also reinforced by the Government’s commitment to meeting the medium term fiscal targets outlined in the Fiscal Policy Paper.”
The Bank further stated that, “Jamaica’s key macroeconomic indicators continue to reflect generally positive trends and macroeconomic stability is entrenched.

Treasury bill rates on the decline and heading to 4% soon.

Inflation expectations remain firmly in single digits, international reserves are growing, the current account of the balance of payments is projected to remain at sustainable levels, market interest rates continue to trend downwards and the fiscal accounts remain strong. This easing in monetary policy will support continued credit expansion and economic growth.”
The reduction comes against of a relative sharp fall in Treasury bill rates over the past three issues that saw the November offer resulting in the rate on the 91 days instrument falling to 4.26 percent from 4.58 percent previously and the 181 days rate slipping to 4.89 percent from 5.11 percent. Rates on the 182 days instrument, fell 34 basis points to 5.11 percent having dived 53 basis points to 5.45 percent in September. The 91 days Treasury bill rate, fell 40 basis points from 4.98 percent in September to 4.58 percent in the latest auction.

T-bill rates drop again

Rates on Government of Jamaica Treasury bills fell again in November, with the latest offer resulting in the rate on the 91 days instrument falling to 4.26 percent from 4.58 percent previously and the 181 days rate slipping to 4.89 percent from 5.11 percent.
In April the 91 days rate was at 5.71 percent and fell in August to 5.49 percent before dropping sharply in September and October to reach 4.58 percent then.
In April the 182 days rate was at 6.4 percent and fell in August to 5.99 percent before dropping sharply in September and October to help push the current rate under 5 percent. As indicated in the attached chart the rates seems headed for 4 percent for the 182 days instrument and should be there by January or February if current trends continue.
Investors in equities, Money Market Instruments and real estate should pay keen attention to this critical development that will have profound implications for values in the market.

38% more taxes by Jamaican businesses

Increased taxes pushed inflation in April.

Jamaica’ business sector paid 39 percent more taxes to government than projected, for the year to September, with $23 billion collected in corporation taxes resulting from a $6.5 billion increase ahead of forecast.
For the 2017 fiscal year, $16.4 billion was raked in, to September while $52 billion in corporate taxes was paid by the business sector for the full twelve months. Special Consumption taxes on local goods rose 50 percent above forecast with a $5 billion increase while local GCT grew 6 percent or $2.6 billion and travel tax jumped 26 percent or $2 billion above the amounts budgeted earlier in the year. Tax on interest fell $2 billion below forecast to $5 billion and was the only major area of underperformance

Jamaica’s Ministry of Finance newest office building

Revenues for the government of Jamaica continues to outperform forecast with inflows rising $15 billion more than the amount projected, bringing the half year take to $262 billion.
Expenditure underperform projections by $3 billion as interest cost fell $2 billion and the wage bill fell $1 billion.
Government operations ran at a deficit of just $620 million in September, but for the year to date, a surplus of $5 billion. Interestingly, the capital expenditure that have struggled to keep pace with forecast, is down by just $144 million with $18.3 million having been spent. The primary surplus, one of the major target under the IMF agreement, came in at $62 billion or $17 billion better than planned.

Jamaica’s unemployment chopped to 11.3%

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More Jamaicans were employment in July this year, than those that did a year ago, accordingly 29,200 or 2.5 percent more persons gained employment by July, raising the total persons employed to 1,216,200 up from 1,187,000, recorded in July 2016.
Increased employment, resulted in the unemployment rate for July 2017 declining to 11.3 percent, 1.6 percentage points lower than the rate of 12.9 per cent for July 2016 and is also down from the 12.2 percent achieved in April this year, The decrease was driven by a decline in the unemployment rate for both males and females.
The unemployment rate for males decreased from 9.5 per cent to 8.0 percent while that of the female decreased from 16.9 per cent to 15.2 per cent. The size of the July 2017 labour force increased over the corresponding period in 2016 with the number of persons in the Labour Force being 1,371,200 persons, an increase of 8,000 (0.6 percent) compared with the 1,363,200 recorded in July 2016.
This report presents the key findings of the July 2017 Labour Force Survey which was conducted during the period July – September 2017 with the reference week being June 18 -24, 2017.

Employ,ment increased strongly in the hotel sector.

According to Statin, the occupation group ‘Service Workers and Shop and Market Sales Workers’ showed increase employment of 8,400 persons (3.1 percent), between July 2016 (269,200) and July 2017 (277,600). The group ‘Skilled Agricultural and Fishery Workers’ increased by 8,300 persons from 188,600 in July 2016 to 196,900 in July 2017.
The industry group “Hotels & Restaurants Services” increased by 11,000 (11.4 percent) moving from 96,400 in July 2016 to 107,400 in July 2017. The largest increase in the number of males employed (6,800) was in the industry group “Agriculture, Hunting, Forestry and Fishing” moving from 145,200 to 152,000 representing a 4.7 per cent over the period. For females, the industry group “Hotels & Restaurants Services” accounted for the largest increase of 8,300 (14.9 percent) over the period, moving from 55,700 in July 2016 to 64,000 in July 2017.

Treasury bill rates heading to 4%

Treasury bill rates dropped sharply again in the latest Government of Jamaica’s October auction. Rates on the 182 days instrument, fell 34 basis points to 5.11 percent having dived 53 basis points to 5.45 percent in September.
The 91 days Treasury bill rate, fell 40 basis points from 4.98 percent in September to 4.58 percent in the latest auction. In September the rate dropped 51 basis points. The attached chart shows the resistance levels going back to early 2016 just below the 6 percent level that lent support to the rates until June when rates started to drift slowly downwards and was decisively broken in September on its way to 4 percent.

J$127.77 mid-day rate for US$

Authorised dealers bought US$9,913,199 at an average rate of J$127.137 up to mid day on Thursday and sold US$5,243,960.45 at an average of J$127.769.

On Wednesday at midday, the selling rate of the US dollar was $127.85, with US$12 million being sold. In Thursday’s session dealers bought C$6,640,074 at J$102.817 each and sold just C$98,944.26 up to the same time.

Inflation jumps in September

Consumer prices rose sharply in September, this year, as recorded by the consumer price index. The inflation rate climbed 0.7 percent according to the Statistical Institute of Jamaica (STATIN) and resulted in year-to-date inflation of 3.7 percent.
Inflation for the past twelve months is 4.6 percent and the fiscal year-to-date movement at 2.6 percent. The rise in September comes against the back ground of the rate moderating in July and August.
According to Statin, “the main contributor to this movement was the 2.6 percent rise in the division ‘Housing, Water, Electricity, Gas and Other Fuels’ due mostly to higher electricity rates. The rise in the division’s index was moderated by a fall in water and sewage rates.”
‘Food and Non-Alcoholic Beverages’ went up by 0.4 percent influenced mainly by a 1.1 percent increased for the class ‘Vegetable and Starchy Foods’. Other notable increases were for ‘Restaurants and Accommodation Services’ (1.0 percent) due to increase in prices for meals consumed away from home and ‘Education’ (2.0 percent) as a result of higher tuition fees.

Repo rate holds in sluggish T&T economy

Down town Port of Spain, Trinidad.

The Trinidad and Tobago economy remains growth-challenged, but early signs of improvement have appeared in the energy sector as exploration activity picked up in the third quarter.
Output of natural gas is expected to rise with the coming on-stream of the Juniper project, the Central Bank of Trinidad and Tobago stated recently, flowing from their decision to hold the bank’s repo rate at its current level of 4.75 percent.
The report goes on to state that “growth in energy and energy-related production is expected to eventually spur activity in other (non-energy) sectors that are still subdued.” “Available indicators on construction and distribution point to continued sluggishness in these areas. However, official statistics suggest that the unemployment rate has remained relatively steady at just under 4 percent on average in 2016.”
The rate of increase in general prices in Trinidad and Tobago remained low. Data from the  Central Statistical Office point to headline inflation of 1.4 percent in July 2017 (12-month basis), with core inflation, which excludes food prices, also at 1.4 percent. The average for both these measures over the year to July was 2.2 percent and 2.1 percent respectively. Food inflation measured 1.4 percent in July 2017 compared to 0.5 percent in June.
The central bank reported that “Interest rates in the banking system have remained virtually unchanged for the year so far. The strongest loan categories in July were for consumers (4.1 percent growth year-on  year), including the sub components for real estate mortgages (5.0 percent) and credit cards (8.3 percent), while credit to businesses increased by just 0.3 percent.”
“Liquidity in the commercial banking system remained steady in the third quarter of 2017 with banks’ excess reserves at the Central Bank averaging around $2.8 to $3 billion. There was a small increase in the TT-US interest rate differential on 3-month Treasuries from 14 to 16 basis points between July and mid-September 2017.”

J$ revalues to $128.58 vs US$ – Wednesday

The selloff of US dollars continued in forex market activities on Wednesday.
It cost dealers on average, 9 cents less in buying the US dollar than on Tuesday.
Inflows of all currencies into Jamaica’s forex market that rose to US$53.87 million on Wednesday, up from US$48.99 million on Tuesday. Dealers sold US$52.24 million versus US$51.71 million, previously.
US currency purchases, accounted for US$47.72 million on Wednesday at an average rate of $127.89 compared to Tuesday at US$40.33 million at $127.98. Dealers sold US$47.28 million at an average rate of J$128.58 versus J$128.87 for US$43.46 million previously. The selling rate for the US dollar is coming off from a peak of $131.31 on September 15, with the Jamaican dollar recovering 2 percent of its value since.
The selling rate for the Canadian dollar rose to J$103.43 from J$103.25 at the close on Tuesday. The British Pound climbed to J$168.53 for buying the British currency versus J$168.13 on Tuesday and the euro just rose in value against the Jamaican dollar, to J$153.48 to buy the European common currency, versus J$151.18 previously.

Shaw must cut taxes in 2018

Image courtesy of cooldesign/

All available data since 2016 show that the Government of Jamaica never needed to raise taxes to cover the lost revenues from the hiking of the threshold to $1.5 million, as revenues continue to run well ahead of forecast in the last fiscal year and for the current one.
IC gathers that while the government never wanted to increase taxes to cover the cost of the increased threshold, as data suggested that there that the lost revenues would be covered by increased revenues, the International Monetary Fund insisted that they had to increase taxes to cover the lost revenues.
With revenues running well ahead of forecast for two years running its time government start planning to cut taxes in next year’s budget forecast.
Last fiscal year revenues were $8.6 billion better than projected, just about $2 billion short of the cost of the threshold but expenditure was $5 billion lower than planned for a net improvement of nearly $14 billion, much greater than the revenues foregone.

Collector of Taxes office, Constant Spring, Kingston.

After a mere 5 months of the fiscal year to August, the Ministry of Finance has amassed a tidy $14.6 billion more than forecast for the government coffers. If the trend continues by the end of the fiscal year we should be looking at $30 billion more than budgeted and would be more than the taxes foregone by the increase in the tax threshold.
In two years, government has amassed excess tax revenues of $45 billion and assuming there were no major adjustment in the tax threshold, to $70 billion.
The increased revenues over the past three years are well ahead of the increase from new taxes levied and after taking in account a major reduction in PAYE contribution in 2016-17. Not only are the inflows running well ahead of the prior year for the last two and a half years, increased revenues are well above forecast. Two factors are contributing to this buoyancy, improved economic activities and increased taxes, helped by strong increases in corporate profits that is pushing revenues higher.
GOJ revenues inflows have been extremely buoyant since the drop in budgeted inflows for the fiscal year to March 2015. While 2015 fiscal year came up short of budget by $16 billion with revenues at $412 billion, 2016 came in with $50 billion more than the out turn for 2015 at $456 billion and 2017 with total revenues of $514 billion was $52 billion more than for 2016.
Interest cost ended $2 billion lower than projected to August this year and should and the cost should decline even more going forward, with the recent cut in Treasury bill rates by over 50 basis points.
The government gave up $10 billion in payroll taxes last fiscal year and an additional amount, estimated at $13 billion this fiscal year but the revenues are still well ahead of forecast.
With the buoyancy in tax revenues and lower interest cost on loans the government should have far more room to reform taxes in 2018 and reduce taxes as well as improve allocations for social spending.