BOJ cuts rates again


Bank of Jamaica cuts the overnight policy interest rate by 25 basis points to 2.75 per cent effective February 2, the third reduction within three months.
The reflects the Bank’s assessment that inflation for the next eight quarters should remain within the target of 4 per cent to 6 percent and comes against the back ground of a sharp fall in Treasury bill rates last week, with sign of a fall to 3 percent before too long.
The central bank cuts the overnight rate to 3 percent in January from 3.25 percent that it was reduced to, in November last year.
The central bank stated that the “outlook for inflation reflects the expectation for continued fiscal consolidation in line with the fiscal rules. Recovery in the real economy continues to be sluggish even as projections show a modest acceleration in economic growth over the next two years. Inflation expectations remain low and broadly anchored around the Bank’s target. One upside risk to inflation is that overheating in the US will support higher demand for Jamaica’s goods and services. Strong growth in the US may also prompt tighter monetary conditions there but the pass through of this effect to the domestic economy may be ameliorated by continued reductions in Jamaica’s sovereign risk premium.”
The Bank further stated that the “decision to lower the policy rate is aimed at supporting accelerated expansions in credit and economic output. The key macroeconomic indicators continue to reflect positive trends. International reserves continue to expand, the current account of the balance of payments is projected to remain at sustainable levels and the fiscal accounts remain strong. The persistence of excess liquidity conditions in the domestic money market also continues to signal reductions in market interest rates.”

Treasury bill rates plummet

Interest rates on Government of Jamaica Treasury bills reached their lowest levels in decades with the latest round of treasury bills falling sharply as $9.1 billion dollars chased after the limited amount of $1.8 billion on offer in three tranches.
The 91 day bills cleared at an average of 3.35 percent, down from 3.99 in January, the 182 days instrument ended at 3.593 percent, a fall from 4.16 percent from the average rate in January and the 9 months bill closed at an average of 4 percent. The sharp fall comes against the background of zero inflation rate in January and with no planned tax increase ahead the next few months could continue to see very low inflation.
The decline has implications for a wide array of developments in the wider economy and should herald a general fall in interest rates across the board over the coming months. Rates look as if they will fall further to around 3 percent where they could settle for some time.

Zero inflation in Jamaica – January

On average, prices in Jamaica hardly moved in the first month of 2018, according to data released by Statistical Institute of Jamaica (STATIN) as a result the inflation for the past 12 months ended at 4.8 percent.
“The inflation rate recorded a negligible movement according to the January 2018 Consumer Price Index,” Statin stated in their released today. “This was as a result of fluctuations recorded in the index for the heaviest weighted divisions: Food and Non-Alcoholic Beverages, Transport and Housing, Water, Electricity, Gas and Other Fuels. The highest weighted division, Food and Non-Alcoholic Beverages registered a fall of 0.2 percent, due mainly to the class Vegetables and Starchy Foods recording a decline in its index of 1.4 percent because of lower prices for starchy foods and vegetables.”
Housing, Water, Electricity, Gas and Other Fuels increased by 0.3 percent, primarily resulting from higher electricity and water rates. The index for Education rose by 0.5 percent.
Revaluation of the Jamaican dollar against the US dollar during the last two months of 2017 and improvement in weather conditions that resulted in more supply of local foods would have been major contributors to the moderation in inflation.

Jamaica Government revenues surge

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Collector of Taxes Constant Spring Road.

Revenues and grants surged $3 billion above forecast, in December to bring the surplus over budget, to just $15.7 billion or 4.2 percent more than forecast.
Not only were revenues more positive than planned but recurrent expenditure came in 2.4 percent or $9.4 billion lower than was budgeted, ensuring that the government operated a fiscal surplus of $14 billion for the year to December versus a planned deficit of $11 billion.
The surplus would have been even greater had it not been for the fact that in December tax collection on interest had more taxes refunded that exceeded inflows, resulting in net withholding tax being negative $1.65 billion, which led to the collection for withholding tax revenues coming up short of forecast by $4.9 billion.
The critical primary surplus came in at $23 billion ahead of target of $75 billion.
Spending was cut on wages and related cost by $4.2 billion, interest cost fell $2.7 billion to end at $95.2 billion and other cost was lower by $3.4 billion.
Corporation taxes with surplus of intake of $6.7 billion is 26.4 percent ahead of target and is the biggest contributor to the surplus intake of revenues followed by Special Consumption Tax with $4.8 billion and General Consumption Tax with $5 billion.

Fitch upgrades Jamaica’s economic outlook

International rating agency, Fitch Ratings, in their most recent rating on Jamaica, affirmed the country’s long-term foreign and local currency Issuer Default Ratings at ‘B’ and revised the outlook from “Stable” to “Positive”.
According to information released by the Ministry of Finance, the rating action was predicated on the improvements in the macroeconomic and fiscal indicators. The ratings were also supported by the country’s structural strengths, such as relatively high income per capita and social indicators, policy consensus and relatively strong institutional capacity.
The press release highlighted a number of positives which led to latest positive ratings. The factors are macroeconomic stability continues to improve, the public debt to GDP ratio continues on a downward trajectory, Government is on course to record another primary fiscal surplus of around 7 percent of GDP for the current fiscal year, which is equivalent to an overall balanced budget. The other factors are, appreciation of Jamaica dollar relative to the US dollar, Bank of Jamaica benchmark overnight rates have been lowered, external finances are on a sustainable path and external liquidity has improved.

Unemployment in Jamaica drops to 10.4%

Unemployment in Jamaica took another fall in the latest survey, done by the Statistical Institute of Jamaica (STATIN) as 27,300 more persons gained employment over the 12 months period to October last year.
The latest data from Statin shows, the unemployment rate falling to 10.4 percent in October last year, “the lowest since October 2008,” Statin stated. According to Statin the rate of unemployment “has been trending downwards over the last decade”. The unemployment numbers are based on a Labour Force, of 1,347,600 representing a decrease of 6,500 compared to 1,354,100 in October 2016.
A total of 1,206,800 persons were employed in October 2017, representing 27,300 persons or 2.3 percent more than the 1,179,500 recorded in October 2016. Employment for males increased by 5,300 to 668,900 and for females an increase of 22,000 or 4.3 percent from 515,900 to 537,900 over the same period. The youth unemployment fell but remains high at 25.4 percent, the lowest since January 2008.
The overall unemployment rate for the country in July last year was 11.3 percent.

Treasury bill rates at 4% level

Treasury bill rates now hovering around 4

Rates on 91 days Treasury bills fell below 4 percent for the first time in decades and the 182 days issue slipped to sit just above 4 percent at the mid-January Auction of Government of Jamaica Treasury bills.
The average rate for the 91 days instrument fell to 3.99 percent from 4.18 percent in December and the 182 days issue now sits at 4.16 percent down from 4.63 percent in December and is in line with IC forecast that the rates would hit 4 percent during the current quarter. The Central Bank announced a 25 basis points cut in their overnight rate to 3 percent on Wednesday.

Bank of Jamaica chops interest rate

Falling interest rates

Interest rates on the Bank of Jamaica overnight policy rate was slashed by 7.7 percent effective 18 January 2018. The policy interest rate which is offered on overnight placements with the Bank will be reduced to 3 percent from 3.25 percent.
According to the country’s central bank, “this adjustment reflects the Bank’s assessment that inflation for the next eight quarters should remain within the target of 4 percent to 6 percent but the risks to the projections are skewed to the downside. One of the key risks highlighted by recent data is that, even as the economy continues to expand, growth has been weaker than anticipated. The outlook for inflation continues to reflect the expectation that the Government will continue the high standard of fiscal management outlined in the fiscal rules.”
“Inflation picked up slightly in recent months, largely driven by higher agricultural food prices and electricity costs caused by the recent heavy rains and increases in international oil prices. However, the inflationary impact of the heavy rains on agricultural food prices should be reversed over the coming quarters.”
“The Bank’s decision to ease monetary policy supports continued credit expansion and faster economic growth. International reserves are growing, inflation expectations remain broadly anchored around the Bank’s target, the current account of the balance of payments is projected to remain at sustainable levels, market interest rates are declining and the fiscal accounts continue to perform strongly.”
Investors in fixed assets such as real estate and equity investments should take note as it could mean a lift in the value of those assets class.

Jamaica’s inflation tops 5%

Inflation in December 2017, increased by 0.6 percent, bringing inflation for the year to 5.2 percent, according the inflation report put out by the Statistical Institute of Jamaica (STATIN).
According to Statin, “the movement was attributed largely to the upward movement recorded in the index for the divisions Food and Non-Alcoholic Beverages, 0.8 per cent and Housing Water, Electricity, Gas and Other Fuels, 1.2 per cent. The upward movement for the heaviest weighted division Food and Non-Alcoholic Beverages was primarily influenced by the class Vegetables and Starchy Foods which went up by 2.2 per cent. Higher prices for vegetables and starchy foods were the main contributors. Meanwhile, the increase for the division Housing Water, Electricity, Gas and Other Fuels was due mainly to a rise in the cost of electricity.”
Inflation in Jamaica for 2016, fell to the lowest level in decades, with the Consumer Price Index showing inflation rate at just 1.72 percent for the year, while 2015 ended with 3.7 percent increase.

Econ growth to continue for Jamaica

The Jamaican economy shows several signs of growth for 2018 with many positives prominently exposed even as the Statistical Institute of Jamaica data shows growth on nearly 1 percent per annum in the September quarter.
Subsequently to the quarter, Alpart Alumina plant came into production and will add value to growth in the December quarter. Pace of tourism arrivals picked sharply in the post April period climbing in double digit in stop over arrivals and bode well for continued high levels of increase in 2018. Employment was running at a rate of 2.46 percent in July 2017 over the previous 12 months period, suggesting that the economy was probably growing closer to 2.5 percent level than the low pace the authorities suggest growth was at. Other data is suggesting much higher growth levels as well. Corporate tax collection is running 33 percent ahead of forecast and 42 percent ahead of collections to November 2016 over the prior year a strong indication that revenues and profits were increasing at a fast pace. GCT collection on local goods and services is up 8 percent about budget and a strong 15 percent ahead of the 2016 period and construction levy is 61 percent above budget and 66 percent over collections for the same period in 2016, a very good proxy of developments within the construction sector, while education taxes a proxy for increased wages and employment, end up 5.9 percent above target and 15 percent over actual collection in the period to November 2016.

New building going up in New Kingston

Sales for Caribbean Cement grew 15 percent to September last year and more growth is expected in 2018 with a surge in construction. The construction sector should get a boost from the start of the Harbour View to Portland road works and widening of the Hagley Park and Constant Spring roads in Kingston. Bank loans also grew in 2017 and should continue to grow in 2018 as interest rates fall and demand for loans to fund economic expansion climbs. The BPO and poultry sectors are expanding with more to come.
Treasury bill rates fell 29 percent from 6.56 percent to 4.83 percent, that level of decline, while this level of decline seems unlikely to happen in 2018, technical indicators are pointing to lower interest rates. IC is forecasting rates on 182 days Treasury bill hitting 4 percent by the end of the 2018 first quarter.
There is increasing employment taking place and that should continue in 2018 as economic activity gains momentum, this will mean more spending and increased tax collection for government. Alpart’s resumption of Alumina production is a big positive for the overall economy, for increased government revenues and increased demand for local goods and services.

The mining sector to add to growth in 2018.

Importantly, there are several indicators that productivity has jumped sharply with major growth in production in many areas of production particularly in tourism and manufacturing thus offsetting by a wide margin the drag of inflation differential and revaluation of the local dollar. A strong 21 percent growth in non-traditional exports to October and expansion of a number of manufacturing companies is a good indicator of increased productivity as constraints on local consumption eases thus boosting demand. Revenue from total exports was valued at US$1.08 billion, 9.4 percent above the same period 2016 to October but will get a big boost this year with the reopening of Alpart alumina operations.
IC expects the debt to GDP to fall towards 100 percent of GDP by the end of 2019 fiscal year as the government continues to operate with a fiscal surplus. Inflation should remain subdued, house prices will rise. IC expect little or no new taxes in the 2019 fiscal year as revenues continue to be buoyant and Alpart operations to provide fresh new revenues.