BOJ’s several missed inflation forecasts

Bank of Jamaica has done an awful job of telling the truth about inflation in Jamaica since early 2021 and the bank’s management of the tools to combat it. The impression given is that inflation continues to run at nearly ten percent per annum for most of this year, but that is false. According to data released by Statin since January, inflation is running at just under 6.5 percent per annum, not the ten percent the bank is consistently mentioning in its reports and recently reduced to 9.3 percent.

BOJ interest cuts overnight rate.

It is not that interest rates should not have been increased, the question is the extent of it and how long it may go on. It also means that they have been applying the incorrect dosage of interest rates medicine to inflation that has subsided since the start of the year. The reality is that the terribly high inflation rate was up to September last year, not in 2022, although they were some high months this year but not as high as the comparative periods last year.
Come December or January, the country will be told that inflation has suddenly plummeted to the 6 percent level because the bad periods for 2021 are no longer in the data set. The decline will have had little to do with Bank of Jamaica’s interest rate hike, but as sure as night follows day, the central bank will be praised for its action in bringing the inflation rate sharply down. That of course will be far from the truth.
The reality is that just about every public forecast by the country’s central bank since the beginning of last year proved to be wrong. It started with a letter written to the Minister of Finance in March last year in defending the maintenance of the 4-6 percent target for three years. In May of that year BOJ stated that while inflation is forecasted to rise further over the next two months, the Bank forecasts inflation to fall in the second half of the year, consistent with the consensus forecast for a fall in commodity prices. Immediately after that statement, the inflation rate declined in the following two months.
The classic case of getting wrong is BOJ’s letter to the Minister of Finance in 2021. 
“I am recommending that the target for the 12 months point to point in the spread as measured by the percentage change in consumer price index remains at 4 percent to 6 percent for the next three fiscal year,” this is an extract from a letter written to the Minister of Finance by Richard Byles head of the Monetary Policy Committee (MPC ) of Bank of Jamaica dated March 29th 2021, the letter went on to state “the targeted lower rate of inflation is not advisable as achieving this lower rate will require tighter monetary policy which will restrain the anticipated recovery in the Jamaican economy and impair the government’s debt reduction strategy. “
By May of 2021, the central bank changed its position, informing the nation that tighter monetary policy would be put into effect and that the overnight rate would be raised when they meet in September, an action which has taken from 0.5 percent to 1.5 percent.
Inflation data indicates that the dark days of higher inflation started to overshadow the country from November and December of 2020 compounded by the March inflation and was well embedded from May onwards suggesting the higher rates should have commenced from then, but the focus on point to point inflation disguised the true extent of what was going on. It appears that they are set to make the same error again, this time by focusing overwhelmingly on the point to point inflation since last year rather than looking at the trends since late last year and in 2022.
Interestingly, although the central bankers raised interest rates over the period to 6.5 percent the economic growth of the country exceeded the bank’s forecast and raises questions about their original assessment that rising interest rates would have trimmed GDP growth significantly.
The issue for this publication is not whether the Bank of Jamaica should raise rates it was clear from the earliest 2019 that the bank erred in dropping rates as low as it did at the time thus removing the incentive of Jamaicans to save in local dollars and instead encouraging them to switch to U.S. dollar investments. If the Bank of Jamaica in a matter of a few months got the inflation outlook so wrong what assurance can there be that the increase rates will not over impact the economy and create mayhem within the financial system?
Jamaicans should therefore be very concerned whether the Bank of Jamaica is correctly interpreting the data that they are churning out or not and how much credibility can be afforded them in directing the country’s monetary affairs. Longer term the bank is still holding to the 4 to 6 percent target, which suggests that sooner than later rates will have to be reduced to prevent the rate from slipping under the 4 percent bottom.
They stated in their MPC release that “while headline inflation at June 2022 may be lower than expected, the Bank prefers to see evidence of a definitive fall in commodity prices, consistent with global consensus forecasts, and a reduction in core inflation before moderating the tight monetary policy stance. The Bank expects to see this in the September and December 2022 quarters and with it, a fall in inflation expectations. Of course, this depends on tensions between Russia and Ukraine not escalating.”
The MPC report goes on to say, “inflation is projected to fall within the target range by the December 2023 quarter. This is two quarters later than previously projected. Consistent with the consensus forecast for a fall in commodity prices and the Bank’s overall monetary policy stance, and absent any new shocks, annual inflation is projected to range between 9 per cent and 11 per cent for the remaining months of 2022. Inflation is projected to fall to single digits in early 2023 as long as the conflict between Russia and Ukraine does not escalate and inflation among Jamaica’s trading partners continues to fall. In addition, the Bank’s baseline forecast assumes that the public’s expectation for future inflation will fall during the second half of 2022.”
The above is not what is taking place currently.

BOJ pushes interest rate higher

Bank of Jamaica which increased the overnight rate over the past year by 550 basis points to 6 percent in August has pushed the rate to 6.5J percent in its latest decision.
According to the Central Bank, while “the key drivers of inflation and other economic indicators are trending in the right direction, conditions have not sufficiently solidified to ensure that inflation is sustainably on a downward path.”
“Bank of Jamaica is also concerned about the slow pace at which interest rates on local currency deposits and loans have responded to its policy signals. In a context where the Bank’s policy rate has increased by 500 basis points (bps) between end-September 2021 and end-July 2022, the weighted average deposit rate offered by deposit-taking institutions to the public has increased by only 37 bps.”
“ In addition, the pace of monetary tightening among Jamaica’s main trading partners has accelerated. On 21 September 2022, the Federal Reserve Board raised its interest rate target by 75 bps, 25 bps more than anticipated by the Bank. The Fed also changed its forward guidance to signal that interest rates could rise to 4.4 percent by end-2022 and to 4.6 percent by end-2023, compared to its previous median projections of 3.4 percent and 3.8 percent, respectively. This more aggressive stance could result in US dollar assets becoming more attractive relative to those denominated in Jamaican dollars, which could cause capital outflows, prompting a faster pace of exchange rate depreciation and, consequently, a derailment of the Bank’s efforts to manage inflation.”

BOJ is wrong as inflation keeps falling

Jamaica’s central bank (BOJ) was granted independence in 2021 but they seem to be making a mess of it. For much of last year they fiddled around telling the country that inflation was well under control and that it would remain within the band of 4-6 percent for two years, that’s before they found out that it wasn’t.
They informed the Ministry of Finance in April last year, why they could not increase interest rates as that would trim economic growth. In May, they made an erroneous statement that inflation was still getting higher when the underlying data was suggesting that it was improving and close to their target.
According to BOJ inflation was 11.8 percent in April and would get worse over the next two months. advised that they were wrong and that inflation was running close to the target since October and therefore was not getting worse but was improving.
According to the BOJ after its meetings held on 12, 13 and 18 of May 2022, “the Monetary Policy Committee (MPC) noted that inflation at April 2022 of 11.8 percent was higher than the outturn at March 2022 and represented the ninth consecutive month that inflation has been above the Bank’s target range of 4.0 to 6.0 percent. While inflation is forecasted to rise further over the next two months, the Bank forecasts inflation to fall in the second half of the year, consistent with consensus forecast for a fall in commodity prices. This means that the public should start to see lower inflation rates each month, beginning in the second half of 2022, as long as tensions between Russia and Ukraine do not escalate and inflation among Jamaica’s trading partners falls.”
The latest data from Statin is once more confirming what we stated last month and casting serious doubts on the authority of the central bank.  Statin’s latest reading on inflation is 0.3 percent for May with the year or year rate down to 10.8 percent, which is down 100 basis points from the April reading. The monthly rate for May is the lowest since November last year with zero inflation and April with negative 0.5.
Since October last year, some seven months ago even before the interest rate hikes took effect, inflation was just over 6.4 percent per annum. With an average of 0.535 percent per month. For the period from December last year, the average rate is 0.547 percent per month, but since January it is running at 5.46 percent per annum.
The rate is moderating, but the country is not out of the woods as yet. There are some hopeful signs for the coming months. The rate of exchange of the Jamaica dollar is now officially J$153.45 to the US dollar compared to around $156 up recently, this will cut the cost of imports and will contribute in a major way to cutting imported inflation. The recent increase in interest rates will also slow down economic activity.
The inflation trend since October last year, suggests BOJ has overdone the interest rate hike and the rate should start the downward trek before the end of the year.

BOJ interest rate folly

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Bank of Jamaica (BOJ) unwarrantedly, increased the policy interest rate, they offer to deposit-taking institutions on overnight placements with BOJ by 50 basis points to 5 percent per annum, effective 20 May 2022, with a view to continuing slaying inflation that is well past its peak from September last year.
According to a release from the BOJ, “Inflation at April 2022 of 11.8 percent was higher than the outturn at March 2022 and represented the ninth consecutive month that inflation has been above the Bank’s target range of 4 to 6 percent. While inflation is forecasted to rise further over the next two months, the Bank forecasts inflation to fall in the second half of the year, consistent with consensus forecast for a fall in commodity prices.”
The above misses the critical point, with inflation improving since October last year with an average rate of 6.8 percent, just over the BOJ target range. The central bankers fooled around for a major part of 2021 in defending the excessively low interest rates when inflation was getting out of hand. They are erroneously focused on crawling inflation over a twelve month period rather than seeing what was taking place under their feet currently.
They are now making the mistake in the opposite direction when inflation is in decline and close to their 4 to 6 percent band. Available data shows the worse of the inflation was between May and October last year, then running at an average rate of nearly 15 percent per annum, since then, it has been just under six percent per annum, with little help from BOJ as the tighter monetary policy started in late September is just about now likely to start having the effect.
The recently harsh hike in interest rates is not the tool really meant to tame inflation but one more in keeping with reducing demand for US dollars.
According to the Central Bank, “The measures are expected to cause interest rates on deposits and loans to rise further, making savings in Jamaican dollars more attractive relative to foreign currency assets and borrowing in Jamaican dollars more expensive. They are also expected to reduce the demand for foreign currency, leading to a relatively more stable exchange rate.

BOJ interest cuts overnight rate.

The measures are also expected to cause demand in the economy to fall and, consequently, limit the ability of businesses to pass on price increases to consumers.”
It is difficult to be driving a vehicle backward over a long distance to get to one’s destination, accordingly, BOJ should not be setting policy based on what inflation was in the past but on what is likely in the future. Past inflation hikes are irrelevant to future rates once the rates are tamed, as the data now shows. Accordingly, BOJ recent big jump in rates is a mistake and should have been implemented early last year and over several months. The last three rate increases amount to applying drastic medicine after the ailment is well on the way to being cured.
This publication has written in the past disagreeing with the excessively low rate and how it was reducing the value of savers’ money while starving pensioners and small savers of badly needed income. There always is a need for a balance, either way, BOJ has gone too far and far too late.

Alliance get licenses back

Alliance Financial Services (AFSL) which has been acquired by Sagicor Group got back licensed to offer cambio and remittance services at approved locations a release from Jamaica’s central bank Bank of Jamaica advises. 
The release from the central bank stated that under the new ownership structure, AFSL has satisfied the Bank’s due diligence requirements.
Alliance was acquired after Bank of Jamaica suspended the company’s licenses to operate the above services under the former ownership.

Jamaica’s stock market in a good place

The stock market cannot be looked at in isolation from what is taking place in the wider economy, John Jackson said in an address he made recently to the Kiwanis Club of Kingston on the state of the Jamaican Stock Market.  There are many positives occurring that could have a good impact on stocks and the stock market but there are a few negatives taking place currently he stated.
Jackson went on to list a series of positives and negatives about the market and the economy. The economy is bouncing back from the major dislocations caused by the closure of the country’s borders in March 2020, resulting in the closure of the important tourism sector and billion dollar loss of inflows. That seems to be behind us now, although not fully based on traffic passing through the two international airports that were lagging behind 2020 and 2019 up to February this year, there are sounds that there may be big improvements in the March numbers. Remittances had record increases, well over the inflows for 2019 in both 2020 and 2021, with the latter up by $1.1 billion over 2019 flows to hit the US$3.5 billion mark.
Employment is at record levels, bettering the pre-pandemic high. The tourism industry was not at full employment when those numbers were compiled, so the situation will be even better when the next set of figures are released up to March, this year. The construction sector is enjoying record performance and absorbing quite a bit of the previously unemployed but higher interest rates could slow down the growth in the sector. There is continued expansion in the BPO sector that is employing a large number of Jamaicans and pulling US dollars into our coffers.
Inflation has risen sharply worldwide and Jamaica has not been spared the impact, resulting in the Bank of Jamaica hiking interest rates sharply from an artificial low up to August last year.
On the positive side, central government has reduced debt to GDP below 100 percent and that is freeing up resources to spend on badly needed capital improvement as well as in social areas that were neglected for decades, with a target of 60 percent of GDP by 2026.
Against the above economic developments and the hope that the Ukraine war and inflation will not derail positive economic benefits for Jamaica, the future of the stock market is good, as economic policy favours low interest rates and growth in GDP that will be positive for profits and stock prices. It should be noted that the number of investors has swollen from just fifty thousand to over 200,000 over the past four years. That growth is creating a broader and more liquid market for investors.

Growth in tourism expected in 2019

The Junior Market is at record levels surpassing the record high of 3,665 points in August 2019, since then, the market closed at over 4,200 points but the Main Market continues to lag and is still below the March 2020 level just before the collapse of stock prices.
In the past, investors were pulled into the market only to see it fall out of bed. This time will be different for some time to come due to cutting of the fiscal deficit, with more to come and a vast improvement in the balance of payments. These will allow for more consistency in policies and less volatility in the market. The market is also more diversified with a wider array of choices than in years gone by.
Investors should remember that the two critical factors driving stocks are interest rates and profits. Rising profits and stable interest rates will ultimately drive stock prices higher. The reverse is true. The key is to buy companies with consistent profit growth, as that demonstrates good management.
Profits for most companies released recently have been good with many of the stocks undervalued. Investors need good information to assist them in buying stocks.
Investors who want to buy stocks should favour undervalued stocks and stay away from ones selling well ahead of the average of the market, using the PE ratio as a guide. They should focus on companies that have a good record of consistent growth to make for a successful investment. Use the market data put out by on earnings, PE ratios, net asset value and dividend payments as a guide in selecting stocks, these are proven to work that is why our Top10 stock selection delivered a 64 percent growth for Junior Market stocks in 2021.

Remittances inched higher for Jamaica

Following historical record haul in remittances to Jamaica, the country saw a modest 1.4 percent growth in total remittance inflows for the first month of 2022 compared to January 2021 as a total of US$244.4 million entered the financial system, data recently released by the country’s central bank show.
In January 2021 inflows jumped nearly 33 percent from US$181.5 million. In 2021 inflows for January was the second lowest month of the year, following February that brought in US$236 million. In 2021 remittance inflows grew by US$592 million to US$3.5 billion.
The USA provided the largest amount of inflows accounting for 70.3 percent, up from 69.8 percent in January 2021. The UK contributed 11.1 percent, followed by Canada and the Cayman Islands, with 9 percent and 5.7 percent respectively, the Bank of Jamaica report indicated.

Bank of Jamaica inflation response worsened

Inflation in Jamaica is getting better, not worse, contrary to the recent statement by the Bank of Jamaica, to the contrary in justifying a steep hike in overnight deposit interest rates by 1.5 percent to 4 percent starting on Monday.

BOJ hikes overnight rate.

Yes, the point to point inflation rate moved up to 9.7 percent, giving the impression that inflation is getting out of hand, but that number does not tell the true story. The 4 percent interest rate will help savers get a more realistic rate on their savings.
The bank really had no significant new information that they did have when rates were raised between September and December, last year. If anything, the new information indicates clearly that inflation is moderating not worsening.
What are the facts? In January and February, last year inflation was negative 1.6 and 0.1 percent respectively and jumped to 1.1 percent in March while slipping to 0.5 percent in April, for a negative year to date inflation then, of 1.1 percent. Between May and September when BOJ moved rates up by 100 basis points inflation was the worse for the year at 1.32 percent per month or annualized 16 percent that is well up from 0.48 percent per month or 5.76 percent. The high rate of inflation suggests the bank should have moved earlier to raise rates than in September.
Inflation since the first interest rate move in September, is running at 0.6 percent per month or 7.2 percent per annum just slightly above the BOJ range of 4-6 percent. The average for the last three months is running at an average of 0.47 percent or 5.64 percent annualized, well below the 16 percent per annum for the period indicated above.
Negative inflation in January 2021 was due to a steep decline in the prices of vegetables and tubers a development that was not sustainable, as such the underlying inflation was more likely positive than negative as such the 0.6 percent increase in January this year is not out of line and is better than the December rate of 0.8 percent. The question to be answered is what can justify a sharp interest rate increase to tame much more moderate inflation over the past three months compared to when the rates were initially raised in September and on two other occasions last year by much smaller amounts that that starting on Monday?

Time for Byles to go

In the 1990s, the then government of Jamaica appointed a failed central banker in an African country as governor of Bank of Jamaica in combination with a failed Minster of Finance they collectively destroyed the Jamaican economy and the financial sector by maintaining stiflingly high interest rates that have set back this country for decades.  
Now that the country is recovering from those calamitous years, the country employed what is in effect a retired non practicing economist as head of the central bank. No major country in the world has placed such a person as head of their central bank.
In a letter to the Minister of Finance around April last year Byles advised the MOF why rates had to be kept at levels well below inflation. According, to the central bank that was to facilitate growth and any increase, would trim the growth level quite a bit.
In reality, GOJ was the major beneficiary of the low interest rates and lenders to banks were subsidizing the goverment by getting little interest on their money.
This publication had repeated disagreed with the BOJ policy of abnormally low interest rates as having disastrous consequences for the economy. The chickens are now rooting and the central bank is panicking with the latest measured knee-jerk 1.5 percent in its overnight rate to 4 percent.
Up to June last year Bank of Jamaica (BOJ) held the policy interest rate unchanged at 0.50 percent per annum. According to the Central Bank, the decisions taken then by Bank of Jamaica are aimed at ensuring that the annual increase in the prices of consumer goods and services remains within the Bank’s inflation target of 4 to 6 percent.
The decision to hold the policy rate unchanged was made by a unanimous vote by the Bank’s Monetary Policy Committee (The Committee/MPC). This decision was based on the MPC’s assessment that, despite recent increases in international commodity prices, the existing stance of monetary policy remains appropriate to support inflation within the target range over the next two years. The Bank’s accommodative monetary policy posture is also aimed at supporting a recovery in economic activity in Jamaica.
Something seems to have blinded the eyes of the MPC who met again in August but only move rates by a huge 100 basis point then and now 1.5 percent. All talk of growth has completely gone from the justification for keeping rates well below inflation.
The message seems clear, the central bankers and the MPC are clueless as to what they are dealing with.

Bank of Jamaica jacks up interest rate 1.5%

Bank of Jamaica (BOJ) jacks up its policy interest rate offered to deposit-taking institutions on overnight placements by 150 basis points to 4 percent per annum, effective 21 February 2022 and brings to four the number of increases implemented since September 2021.

BOJ interest cuts overnight rate.

According to a release from BOJ the bank also decided to pursue stronger measures to contain Jamaican dollar liquidity expansion and to maintain stability in the foreign exchange market. Finally, consistent with meeting its inflation target sustainably in the medium term, the MPC agreed to consider maintaining or expanding its suite of policy measures at subsequent policy meetings. This position is subject to inflation, inflation expectations and other macroeconomic data evolving as projected.
In general, monetary policy decisions taken by Bank of Jamaica are aimed at ensuring that the annual increase in the prices of consumer goods and services (i.e. inflation) remains within the Bank’s inflation target of 4 percent to 6 percent, the bank stated.