May 2016 Financial News

BOJ says inflation falls to "historic low". Lowest rate in 50 years

May 27, 2016

Bank of Jamaica Governor Bryan Wynter says that inflation fell to a historic low of three per cent during the first quarter of 2016 (January-March).

“This is lower than the 3.7 per cent recorded at December 2015, and the four per cent at March 2015,” he told yesterday’s Quarterly Monetary Policy Report press briefing at the bank’s downtown Kingston headquarters.

“It was also well below the bank’s target range of 5.5 percent to 7.5 percent for financial year 2015/16, and represents the lowest fiscal outturn since financial year 1966/67,” Wynter stated.

According to the report, contributing to the inflation out-turn for the fiscal year was a fall of 1.3 per cent in consumer prices in the quarter.

Wynter said that the fall in prices was mainly influenced by declines in energy and transport-related costs, as well as domestic agricultural food prices. He also noted that the fall occurred despite exchange rate depreciation of 1.4 per cent for the quarter.

“Inflation continued to decline in April, with STATIN reporting that it was minus 0.4 per cent, pushing annual inflation down to 2.4 percent,” Wynter explained.

He said that underlying inflation was also low and falling.

“The bank’s measure of core inflation that excludes changes in agriculture and fuel prices was three per cent at March 2016, relative to 5.5 per cent the year before,” he pointed out.

He said that while some of the slowdown was caused by lower international oil prices, the low level of inflation was the result of the bank ‘s monetary policy, supported by the strong fiscal policy stance of the government.

“The fiscal anchor has proven to be a powerful force for macroeconomic stability. In line with this, inflationary expectations continue to be firmly anchored in single digits. The Bank’s latest inflation expectations survey, conducted in February 2016, indicated a slight fall in expected inflation 12 months ahead to 4.3 per cent from 4.4 percent in the December 2015 survey,” he noted.

Wynter said that, in the context of the outlook for low inflation over the near to medium term, the bank maintained an accommodative policy stance. The signal rate, the interest rate on the 30-day certificate of deposit, was maintained at 5.25 per cent during the quarter.

He acknowledged, however, that there has been a “noteworthy pickup in the pace of exchange rate depreciation since the middle of April”. The exchange rate depreciated by 0.9 per cent in April and 1.8 per cent in May so far.

“This rate of depreciation is excessive and is not supported by the prevailing economic conditions,” he commented.

However, he said that the pressure in the foreign exchange market since April appears to have been influenced by specific financial account transactions and their impact on market pricing.

He said that the most significant of the transactions appeared to be the prospect of a large US dollar bond issue in the local capital market by a foreign financial institution.

“This stimulated additional demand for foreign exchange and influenced expectations of further depreciation,” he explained.

Source:
BY BALFORD HENRY
balfordh@jamaicaobserver.com
Senior staff reporter 
Jamaica Observer
Friday May 27, 2016

http://www.jamaicaobserver.com/business/BOJ-says-inflation-falls-to--historic-low--_62194