May 2015 Financial News

BOJ expects oil prices to remain low for 12 months. GDP growth projected at up to 2.5%

May 27, 2015

The Bank of Jamaica (BOJ) expects global oil prices to remain under US$60 a barrel for 12 months.

It forms part of the central bank's single digit inflation forecast which should augur well for consumers hit by the recent petrol tax by Government.

"For the next four quarters, average crude oil prices are projected to remain below US$60 per barrel, on average, given the impact of continued robust global supplies," stated the BOJ in its Quarterly Monetary Policy Report (QMPR) released this week, adding that risks include the possibility of reduced supplies from the USA.

Oil prices trended down from roughly US$100 a barrel last July to half that amount by year end. Oil prices ended Monday at US$58.44 a barrel.

The forecast price movement of oil will contribute to inflation continuing on a downward trend for the first half of FY2015/16 before gradually increasing to end the year. Inflation for this fiscal year is projected in the range of 5.5 per cent to 7.5 per cent.

"This path for inflation primarily reflects the impact of lower prices for domestic agricultural commodities, crude oil and grains in the first half of the year, with some reversals projected for the second half of the year," stated the BOJ. "Lower inflation expectations will contribute to further increases in the expected real return on Jamaica Dollar-denominated assets over the near- to medium-term, auguring well for private capital inflows."

The QMPR report also indicated that the island recorded up to 1.0 per cent real gross domestic product growth in the March 2015 quarter, following two consecutive quarters of contraction.

"The estimated out-turn for the review quarter mainly reflected increases in tourism activity, domestic agriculture and Transport, Storage & Communication," it stated, adding that for FY2015/16, real GDP is forecasted to expand within the range of 1.5 to 2.5 per cent.

The Government of Jamaica introduced $10.38 billion worth of new taxes in March as part of revenue measures for its 2015/16 budget. The impact of these measures would reduce disposable income for consumers and businesses alike.

"The forecast for the fiscal year also incorporated an adjustment in the National Minimum Wage as well as the increase in the special consumption tax (SCT) on petrol and cigarettes. In addition, inflation for the next four quarters is projected to reflect some miscellaneous price adjustments among services such as insurance premiums," stated the BOJ on inflation.

The largest tax measures included the increase in the special SCT rates on petrol by $7.00 a litre expected to gain $6.4 billion annually; the replacement of the 1.0 per cent petrol cess to a special SCT of $2 a litre expected to gain $1.8 billion; the reintroduction of GCT on electricity for residential customers expected to gain $807 million; an environmental levy that introduced 0.5 per cent tax on domestic sales excluding the services sector expected to gain $962 million; and the rationalisation of outdated trade and business licences expected to gain $500 million.

Source:
Jamaica Observer
Wednesday May 27, 2015    

http://www.jamaicaobserver.com/business/BOJ-expects-oil-prices-to-remain-low-for-12-months-_19019447