Inflation up in May

Inflation for May as measured by the All Jamaica ‘All Divisions’ Consumer Price Index increased by 0.5 percent, a 0.1 percentage point increase over the 0.4 percent increase recorded for April 2013, this according to a release from the Statistical Institute of Jamaica (Statin).

The CPI movement was influenced by a 0.8 percent increase in prices for ‘Food and Non-Alcoholic Beverages’, the heaviest weighted division in the computation of the Index. The main contributor to the division’s inflation was an increase of 1.3 percent in the index for ‘Vegetables and Starchy Foods’. ‘Transport’, the second heaviest weighted division, recorded a decline, moving down by 0.2 percent. This was primarily because of lower prices for ‘Fuels and Lubricants for Personal Transport Equipment’, particularly petrol, Statin said. The third heaviest weighted division of the CPI, ‘Housing, Water, Electricity, Gas and Other Fuels’, recorded an increase of 0.7 percent. The upward movement in the index for May 2013 resulted in a calendar year-to-date movement of 3.7 percent.

The other divisions that recorded increases were ‘Alcoholic Beverages and Tobacco’ 0.7 percent, ‘Clothing and Footwear’ 0.3 percent, ‘Furnishings Household Equipment and Routine Household Maintenance’ 0.6 percent, ‘Health’ 0.3 percent, ‘Recreation and Culture’ 0.7 percent, ‘Restaurants and Accommodation Services’ 0.3 percent, and ‘Miscellaneous Goods and Services’ 0.4 percent. No movement was recorded for ‘Education and ‘Communication’.

All three regions covered by the survey recorded increases for the period; Greater Kingston Metropolitan Area (GKMA) 0.6 percent, Other Urban Centres (OUC) 0.8 percent and Rural Areas 0.4 percent.

BOJ offers yet another instrument

Fast on the heels of an issue of two local certificates of deposit that close on Tuesday, 18 June 2013, Jamaica’s central bank, the Bank of Jamaica, announces the offer of another special money market instrument commencing Thursday, 20 June 2013. The instrument, a 365-day US-Dollar Indexed Note due 2014 and is extended to all primary dealers and commercial banks.

The term sheet will be circulated via electronic mail to these institutions on Wednesday, 19 June 2013. A check with the BOJ did not disclose the terms of the issue other than what has been released but IC Insider gathers that the use of this instrument is to provide an alternative instrument for investment purposes without affecting the demand for foreign exchange. IC Insider can report that at least one big bank is rationing US dollars to $2,000 per day per person.

The central bank says in a release that it will continue to offer its regular 30-day Certificate of Deposit at the current interest rate of 5.75 per cent per annum. In addition, the current offers of variable rate Certificate of Deposits will remain open until Tuesday, 18 June 2013, as originally advised and will continue to monitor conditions in the financial markets and adjust its market operations to maintain stability.

Market demand is not driving J$, BOJ is

Over the last three weeks there has been more buying of foreign exchange by authorised dealers than selling, yet the Jamaican dollar has slipped in value. This is not the case of market forces determining the value of the currency, it is manipulation by the central bank to achieve a rate they are happy with. Take the case this week. So far, every day the buying of foreign exchange is more than the amount sold, yet the rates have slipped.

According to The Gleaner, the Governor of the central bank of Jamaica, Brian Wynter, while addressing journalists at a Jamaica House press briefing yesterday, said he understood the consternation of sections of the populace as the dollar eased past the J$100 to US$1 mark, but suggested that the dollar was finding its true value in a market-determined environment.

“We in Jamaica are operating a flexible exchange rate regime that is determined by the market and that is based on the principle that is determined by the market,” Wynter stressed.

Wynter signaled that he was unruffled as the movement of the local currency was consistent with the expectations of the Central Bank, operating under a flexible exchange rate regime, to which the Central Bank is committed. “The exchange falls within the boundary of the BOJ‘s forecast,” asserted Wynter.

USD_Clock150x150We understand that the central bank can’t give an indication of what is its intention with regards the rate of the Jamaican dollar, but to say that the rate is being market determined seems like a big joke when one examines what is taking place.

To be fair, the Governor did give a clear indication. As reported in the Jamaica Observer, the Governor said, “If you have a strong exchange rate that benefits the consumer that is going to make it progressively harder for exporters to compete in overseas markets. If you go the other route and have a too weak dollar you will reverse that picture but also have too much inflation in the domestic economy,” he said. “We have to find the right balance and the programme we are operating within at the moment is built on a balance that will best provide the conditions for export-led growth,” he added.

In short, it is our conclusive opinion that the central bank is the one intervening to move the rate — not normal market forces.

  1. The NIR is less than a billion at the end of May. One supposes that physiologically, building the NIR to over a billion dollars would be better ahead of the post-summer months when inflows are less and demand is higher.
  2. Next, is the other strange thing happening in the FX market. Authorized foreign exchange dealers are selling more foreign exchange than they are buying for the past two weeks, which make no sense. Why would they be selling from their inventory if there is going to be much higher rates down the road? Why are they tying up Jamaican dollars at relatively low interest rates if the benefits to be obtained by interest earned will be eroded by a depreciated dollar? The central bank confirmed that the CD issue that ended on the 7th of this month resulted in tighter Jamaican dollar liquidity and that BOJ bought foreign currency from the dealers. In this sense, BOJ is fully aware of what is happening and is clearly trying to beef up the foreign currency reserves. The BOJ has quickly, as the previous CD issue closed, issued two more to pull more foreign exchange out of the system.

Yes, it is supply and demand that’s driving the rate. But the demand is one that is based on the BOJ encouraging the rate to move up by buying the banks surplus funds at higher and higher rates.

Talk back | Do you agree that the BOJ is influencing the demand side of the equation?

Mixed views from Eastern Carib States

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Business expectations in the Eastern Caribbean states are mixed. That should not be too surprising as the region is in recession with negative inflation for the first three months of the year. In a business survey carried out by the EC Central Bank, 37.4 per cent of the businesses surveyed indicated that they anticipate that general economic conditions would improve in the first half of 2013, while 23.6 per cent expect economic conditions to deteriorate. Of the total, 39.0 per cent expect conditions to remain the same. This resulted in an overall net percentage indicator (NPI) of 13.74 for the region, reflecting the overall positive business sentiment for the first half of 2013. Respondents also expressed optimism when they were asked about the economic climate within their sector.

Survey respondents in five of the ECCU member countries are optimistic about their prospects for the first half of 2013 with positive NPIs being recorded for Grenada (60.0), Montserrat (48.0), Antigua and Barbuda (47.62), St Kitts and Nevis (20.0), and St Vincent and the Grenadines (12.50); while businesses in Saint Lucia (-66.67), Dominica (-36.0), and Anguilla (-18.75), were generally pessimistic about their prospects. 

ECCUlogo150x150Mixed sentiments | While general economic conditions are expected to improve, the sentiments expressed for the key indicators within sectors are mixed. In general, during the January to June 2013 period, businesses expect their sales performance to improve but their profits to deteriorate further relative to the first half of 2012. With respect to overall exports, businesses in six member countries expect an improvement in performance. St Vincent and the Grenadines, Anguilla, Grenada, Montserrat, St Kitts and Nevis and Saint Lucia are optimistic about their exporting prospects during the outlook period while businesses in Dominica expect exports to deteriorate. In Antigua and Barbuda businesses expect their exporting prospects to remain unchanged for the review period. Respondents indicated that they expect the cost of doing business in the ECCU to continue on an upward trajectory. With respect to construction activity performance, sentiments in Anguilla, Grenada, Montserrat and Saint Lucia are optimistic about the outlook period while businesses in Antigua and Barbuda and Dominica expect activity to remain unchanged for the review period. Businesses in St Vincent and the Grenadines expect construction activity to decline.

TRENDS IN BUSINESS SENTIMENTS & CREDIT | An analysis of business sentiments from January 2007 to June 2013 indicates that general business sentiments declined during the period 2007 to 2009, but have fluctuated thereafter. Positive sentiments were expressed for the January to June 2013 outlook period — the first time since January to June 2007.

The trend in sentiments expressed by respondents during the period from January to June 2007 to January to June 2013 reflects one of overall tightening in the terms and conditions for lending over the period with improvements seen in some periods. Sentiments were the lowest during the period July to December with an NPI -82.1 and although still negative, subsequently improved for three consecutive periods. Although the sentiments expressed are still one of overall tightening, an improvement has been seen for the last three survey periods i.e. January to June 2012 to January to June 2013.

The data was adopted from the ECCB.

Exports surge but trade deficit widens

The trade deficit for the first two months of this year widened despite exports growing faster than imports. The deficit was US$827 million compared to US$755 million in the similar 2012 period. Imports rose 12.5 per cent or US$127 million to US$1.148 billion from the same period in 2012. The bulk of the increase was occasioned by US$98 million rise in chemicals.

Exports | Grew faster than imports at an increase of 21.2 percent which generated US$321 million inflows, an increase of US$56 million. Mining and quarrying accounted for major part of the increase. But manufactured goods, which fell by US$23 million, prevented a steeper increase in export earnings. The decline may well be a timing difference relating to shipment of  sugar which is mostly exported in the early part of the year. Statin, who released the report, did not say which items resulted in the decline in manufactured goods. Investigations done by IC Insider confirms that in 2012 the sugar industry exported 40,000 tonnes of sugar between January and February at a value of US$37.5 million and this year only 19,130 was shipped in the same period with a value of US$16.6 million, a difference of US$21 million.

KingstonWharves150x150Imports | While imports rose, not all major categories rose as some items fell. Imports of Chemicals rose by US$178 million to US$276 million, due to higher imports of ‘Organic Chemicals’, ‘Plastic in Non Primary forms’, and ‘Medicinal and Pharmaceutical products’. “Food” increased by US$26 million to US$174 million up by 17.3 per cent. “Machinery and Transport Equipment” increased by US$5.7 million or 3.9 per cent to US$153 million this period.  “Mineral Fuels, etcetera” fell by US$89 million or 21.1 per cent and was valued at US$333 million. “Manufactured Goods” also declined by US$3.5 million or 3.5 per cent, and was valued at US$95 million down from US$99 million recorded in the comparable 2012 period.

Traditional Exports | This segment earned US$139 million during 2013 period, a decrease of 3.4 per cent, or US$5 million, due to the decline in earnings from “Manufactured Goods” which fell by 48.6 per cent from US$48 million to US$25 million. There was an increase in “Agriculture” earning US$3.4 million, 73.2 per cent above the US$2 million recorded in 2012. “Coffee” was the commodity which contributed to the overall increase in this category. “Mining and Quarrying” rose by 17.9 per cent, or US$17 million to US$111 million. Alumina earned US$90.3 million, moving up from US$74 million in the comparable 2012 period. “Bauxite” earnings grew by US$1 million or 4.4 per cent to US$21 million.

Non-traditional | Exports of non-traditional commodities earned US$170 million due largely to increases in the groups “Food’, and “Other Non Traditional Exports”.

CARICOM balance narrows sharply

The trade balance with the CARICOM region narrowed sharply during the first two months of 2013 as Jamaica imported US$41 million less goods form countries in the region compared with the previous year. Not only did imports enjoy a major decline, exports held up well and was virtually the same as the year before period with a mere marginal decrease of US$0.7 million or 6.5 percent.

The country imported US$98 million worth of goods from CARICOM, a decrease of 29.5 per cent. Expenditure on “Mineral Fuels, etcetera” fell by US$50 million or 51 percent to US$48 million. “Food” grew by US$6.9 million to US$30 million.  “Beverages & Tobacco” were valued at US6 million, roughly the same as in 2012 period, the Statin report on the trade data indicated.

Total exports to the region fell by to US$10 million during the 2013 review period. Exports of domestically produced goods accounted for US$8.8 million, down from US$9.2 million in the comparable 2012 period. Re-exports fell to US$1.5 million. The major groups of domestic exports were “Food”, valued at US$5.2 million, and “Beverages & Tobacco” worth US$1.7 million. These two sub-categories increased by 9.0 per cent and 27.4 per cent respectively.

The trade deficit with CARICOM during February 2013 fell by US$40.3 million to US$ 87.6 million. This was due to decrease importation of “Mineral Fuels, etcetera” during the current review period.

GOJ: Deficit cut

The GOJ fiscal deficit for April was cut below projection, as revenues were marginally better while expenses, mainly interest cost, were lower than forecast. The deficit that was projected at $3.46 billion ended up $2 billion better, coming in at $1.43 billion.

Revenue growth | Tax on interest delivered $806 million more than planned, but the early payment of dividends in March by some companies resulted in tax on dividends under performing by $219 million. Special consumption tax brought in $735 million more and motor vehicle licenses accounted for $162 million of the increase and tax on telephone performed better than planned by $122 million.

Rollbackthetax150x150Inflows below | There were areas that underperformed. GCT on local sales was 10 percent less reducing revenues by $666 million, surprisingly education tax was less by $144 million and betting & gaming tax brought in $188 million less than planned. Although travel tax was up 152  percent to $1.27 billion, an increase of $765 million tax on international trade was down $425 million as custom duty brought in $284 million less and Special Consumption tax on imports by $898 million. Tax on international trade may have been down as importers would most likely have brought in goods ahead of the new tax measures.

The government would have been pleased with the revenue performance which was slightly more than projected but which would have been even more had some taxpayers not taken advantage of the long time frame between increased taxes and the implementation of them to minimise their tax liability.

Spending down | Government paid $993 million less on interest or  13 percent less than originally planned and also spent less on wages $228 million and $384 million less on capital expenditure and they repaid $1.7 billion net on loans during the month.

Inflation rate down in April

Jamaicans were facing slightly lower rate of inflation in April than in the earlier months of the year as the consumer price index fell to 0.4 percent for the month, the lowest since the start of the year. This comes against increased taxation on a number of items beginning of April.

As the All Jamaica ‘All Divisions’ Consumer Price Index for April 2013 registered a 0.4 per cent rate of inflation., ‘Food and Non-Alcoholic Beverages’, the heaviest weighted division in the computation of the index, recorded an increase of 1.0 per cent. This was due mainly to the upward movement in the prices for, ‘Fruit’,’ Meat’ and ‘Bread and Cereals’. This division’s rate was however moderated by a 1.6 per cent decline in the rate for the division ‘Housing, Water, Electricity, Gas and Other Fuels’, the third heaviest weighted division in the Consumer Price Index Basket. This was the result of a reduction in the billing rate for electricity in April relative to March. All other divisions recorded increases lower than 1.0 per cent, with the exception of ‘Clothing and Footwear’, which increased by 1.1 per cent.

Consumer-Price-Index-CPI-Inflation280x150The other divisions that recorded increases were ‘Alcoholic Beverages and Tobacco’ 0.7 per cent,  ‘Furnishings Household Equipment and Routine Household Maintenance’ 0.7 per cent, ‘Health’ 0.2 per cent, ‘Transport’ 0.3 per cent, ‘Recreation and Culture’ 0.7 per cent, ‘Restaurants and Accommodation Services’ 0.4 per cent, ‘Miscellaneous Goods and Services’ 0.8 per cent,  No movement was recorded for ‘Education and ‘Communication’  .

The Statistical Institute of Jamaica collects and collates the data and compiles them into three regions. All three recorded increases; Greater Kingston Metropolitan Area (GKMA) 0.7 per cent, Other Urban Centres (OUC) and Rural Areas each  increased by 0.3 per cent.

The movement of prices reflected a calendar year-to-date increase of 3.2 percent.

T&T Govt bond heavily oversubscribed

The auction of the Government of Trinidad and Tobago $1.0 billion 7-year 2.60% bond due 2020 was heavily oversubscribed with total bids received amounting to $2,754.903 million. The bonds are to be dated May 21, 2013.

The bond was allotted at a premium with a clearing price of $104.23 per $100.00 face value, offering investors a yield to maturity of 1.95 per cent. Bids at $104.23 were pro-rated to allocate approximately 47 per cent of the amount applied for at this price, while competitive bids submitted at a price lower than this ($104.23) were rejected. Successful competitive bidders, as well as non-competitive bidders, will be required to pay the clearing price for the bond.

The high level of oversubscription and the low interest rate being received by investors indicates that there is still a bit of excess liquidity in that market.

BOJ: Highest loan growth in years

Credit extended to the public by lending institutions grew at their strongest levels for some time according to data release by Bank of Jamaica in its first quarterly report for this year. For the March 2013 quarter, the stock of credit to the private sector grew by 5.3 per cent relative to the December 2012. This outturn was above the expansion of 3.8 per cent recorded for the corresponding quarter of 2012 as well as the average growth of 1.9 percent for the last five March quarters, the central bank stated.

Within private sector credit, loans & advances grew by 6.3 per cent for the review quarter. This pace of expansion was stronger than the average growth of 1.9 per cent for the last five March quarters. The growth in loans & advances for the March 2013 quarter reflected an expansion of 6.8 per cent in local currency denominated loans, the impact of which was partially offset by net repayment of 1.3 per cent in foreign currency loans.

BankofJamaicaBOJLoans and advances extended to businesses grew by 5.3 per cent for the review quarter. This performance represented the strongest rate of quarterly growth since the December 2011 quarter, when there was an expansion of 7.3 per cent in business lending the reported concluded.

Lending net of repayment was $17.5803 billion in the March 2013 quarter and $9.2454 billion in the March 2012 quarter and in the December quarter $8.0527 billion.