May 2010 Financial News

BOJ bullish on the economy as signs of confidence re-emerge

May 14, 2010

Jamaica's prospects for economic recovery have improved significantly, particularly in a post-Jamaica Debt Ex-change (JDX) period with relative stability in exchange rates and declines in market interest rates, the central bank chief reported at his quarterly press briefing on Wednesday.

"We have begun to see some encouraging signs in the financial markets as investors' anxiety about the JDX morphed into a more positive perception of Jamaica's medium-term economic prospects," said Brian Wynter, governor of the Bank of Jamaica (BOJ).

Wynter, who is now close to six months into his tenure as governor and still without a formal employment contract, said that financial institutions remained liquid and adequately capitalised during and after the JDX transaction, with the US$950-million Financial Sector Support Fund (FSSF) still untapped.

But the governor remained cautious about the likelihood of any financial institution needing assistance from the fund.

"No, there has been no use of it, so we have the money still sitting there in our coffers ready in case it is needed," said Wynter.

"I can't ever know for sure because the nature of the fund is to cover risk that could happen, but that is not likely at this point. As time passes, problem caused by the JDX gets less and less and I think it's fair to say now that there is not much likelihood of a JDX-related problem, but having said that, we cannot know for sure; so the fund is there," Wynter told the Financial Gleaner following his presentation.

forex market steady

Holding to a positive outlook, Wynter, in his presentation, told journalists and financial analysts that the exchange rate had appreciated by 0.1 per cent during the period under review despite early pressures prior to the JDX and approval of the IMF agreement.

Foreign-exchange inflows from tourism were kept afloat, with an increase in stopover arrivals that translated into an 8.2 per cent rate of growth for the sector in the March quarter. The JMD is now trading at $89 to the USD.

Along with the stability in the foreign-exchange market, the central bank governor said a continued downward trend was reflected in domestic interest rates with the yield on the benchmark six-month Treasury bill falling by 6.31 percentage points, or 631 basis points.

"The central bank sees the declining trend in interest rates as an indicator of significantly improved market perceptions about the Government's fiscal-debt profile, as well as a measure of the prospects for stable economic conditions in the medium term," Wynter said.

Consequently, for the coming June quarter, headline inflation is expected to slow within a range of 2.5 per cent to 3.5 per cent, with fiscal-year inflation remaining within the targeted range of 7.5 per cent to 9.5 per cent.

The projected deceleration in the inflation out-turn for the quarter ahead is to come from low consumer demand and the stable exchange rate environment, but will be tempered by the impact of an anticipated increase in oil prices over the year, the central bank chief said.

Although economic conditions will continue to be constrained by weak demand, Wynter noted that the spillover from the positive economic trends in Jamaica's main trading partners will continue with some turnaround in Jamaica's position by the latter part of this fiscal year. Jamaica is projecting growth of half a point.

"The bank is cautiously optimistic that the buds of economic recovery will begin to be seen in the latter part of the fiscal year. The prospects for mining are encouraging, while growth in tourism and agriculture is expected to continue," he said.

And with the improved outlook and signs of a return of investor confidence, Wynter said BOJ was moving to sterilise the liquidity impact of the financial support that the central bank extended to the Government in December, by selling GOJ securities from its portfolio on the secondary market.

Of the J$20.6 billion in govern-ment medium- and long-term securities purchased during December, approximately J$17.6 billion has already been sold on the secondary market, Wynter said.

Additionally, Wynter noted that all J$13.6 billion worth of securities bought during the March quarter were redeemed along with the repayment of the bridging loans extended to the Government.


Source:
Sabrina Gordon, Business Reporter
sabrina.gordon@gleanerjm.com
Friday May 14, 2010

http://jamaica-gleaner.com/gleaner/20100514/business/business2.html