Fincos shift towards sustained policy rates
Published:Sunday | February 4, 2024 | 12:13 AMSteven Jackson - Senior Business Reporter
Most in the financial sector expect interest rates to remain unchanged until at least March, which reflects a large shift among fincos, according to the latest Bank of Jamaica (BOJ) Inflation Expectation Survey.
When polling ended in December, 75 per cent of respondents in the financial sector expected the BOJ policy rate to remain unchanged until at least March. In the previous survey, less than half, or 47 per cent, of respondents held the view when canvassed in October.
The report indicated that there was an uptick in business confidence over the period but did not indicate whether it affected policy rate sentiments.
In October, one-third of fincos expected the policy rate to rise. Now, that figure was virtually slashed in half to 16.7 per cent, also reflecting a big decline, according to the BOJ report.
The survey canvassed 294 respondents and was conducted for the BOJ by the Statistical Institute of Jamaica in November and December. It captures the perception of CEOs, managing directors, and financial controllers about the future movement of prices, current and future business conditions, and the expected rate of increase in wages and salaries.
Those in the financial sector account for a portion of the overall survey respondents. And the views of the financial sector differ somewhat from the wider managers as less than two-thirds of the overall respondents expect rates to remain unchanged until March.
Expectations of sustained policy rates have an impact on planning, the availability of credit, and so on.
The central bank’s policy interest rate has remained stable for a year at 7.0 per cent, with the next rate decision slated for February 20. About two years ago, the central bank’s rate sat at 0.5 per cent but rose 14-fold to current levels to topple inflation, which reached 10-year highs. Policy rates feed into the interest rates to consumers with the 90-day treasury bill rate at 8.1 per cent to December.
A trend identified in the survey was that businesses appear more sanguine about the effectiveness of measures in place to curb inflation. Specifically, respondents expect inflation for the entire 2024 to hit 8.0 percent. This was lower than the 8.8 per cent figure canvassed in the previous survey in October. This shift signals more confidence in the BOJ’s control of inflation.
“Businesses’ perception of the authorities’ control of inflation increased in the December 2023 survey relative to the previous survey,” added the report.
The optimism also came out in the uptick in the Business Conditions Indices conducted in the survey. The increase mainly reflected an increase in the percentage of respondents who said that conditions are “better”.
The Present Business Conditions Index improved to 125.2 points relative to 120.9 points recorded in the previous survey. The Future Business Conditions Index improved to 144.2 points from 133.2 points in the previous survey.