Nov 2006 Financial News

BOJ Governor predicts growth will continue

Nov 09, 2006

Bank of Jamaica Governor Derrick Latibeaudiere believes that growth will continue and even strengthen in the December quarter. He based his expectation on the premise that the macroeconomic conditions will remain favourable. According to the governor, "We expect real growth to strengthen as the construction sector rebounds from the setback of the previous quarters."

The governor's forecast is consistent with the Finance Ministry that is predicting that growth will come out at 3 per cent this year - reflecting an increase over last year's out-turn.

Apart from the rebound in construction, the governor is also banking (no pun intended) his positive growth forecast on expansion in tourism and mining.

The governor's positive forecast is not surprising as in his earlier review of the economy's performance in the just-concluded third quarter he said, "For the September quarter, the Bank estimated that real GDP grew at a slightly faster pace relative to the June 2006 quarter. With the exception of the manufacturing sector, all sectors are estimated to have expanded in the review period".

Regarding the critical linchpin of economic growth - inflation - an area where the Central Bank has recorded significant success, the Bank is projecting continued moderation in inflation.

On this issue the governor said: "We expect that prices of domestic agricultural commodities will continue to moderate and that the consumer basket will benefit from the recent lowering of fuel prices". He expressed concern about the recent upward movement in grain prices which could put pressure on some items in the food and drink category - items that are in strong demand at Christmas time.

Nonetheless, the governor declared: "All told, we expect inflation for the December quarter to be in the range of 1.5 per cent to 2.5 per cent resulting in inflation of around 8 per cent for the calendar year."

But while the governor's forecast remained characteristically positive, he did not appear oblivious to the challenges of the Christmas season that is usually characterised by buoyant consumer demand.

Looking at some of the challenges that the Central Bank usually faces as Christmas time approaches he noted: "The Bank is anticipating the usual seasonally high demand for foreign exchange to meet the increase in imports for the Christmas holidays.

In fact we are already seeing that the pick-up in demand is putting some pressure on the exchange rate. The governor continued: "Private capital flows are expected to remain relatively strong in the quarter and we expect the continuation of significant flows from tourism and remittances. With net international reserves (NIR) now being maintained in a reasonable comfort zone, the Central Bank has the ability and is prepared to augment any temporary shortfall in supplies in the market."

The governor of the Bank of Jamaica (BOJ) said that the BOJ was expecting an increase in demand for "live money" and also expected base money to expand during the December quarter. He told his audience of mainly financial journalists at his quarterly press conference that reviews the economy's performance: "The Bank will remain vigilant in monitoring international and domestic developments.".

The lively question-and-answer session that followed easily assisted in convincing his audience that this was no idle statement.

Observer Reporter
The Jamaica Observer
Business
Thursday, November 9, 2006.
http://www.jamaicaobserver.com/magazines/Business/html/20061108T210000-0500_115059_OBS_BOJ_GOVERNOR_PREDICTS_GROWTH_WILL_CONTINUE.asp