Shift in sentiment: One in four fincos bracing for rate hike
Published:Friday | August 16, 2024 | 12:07 AMSteven Jackson - Senior Business Reporter
One in four members of the financial sector are bracing for a potential rate hike amid economic uncertainty, central bank data on inflation expectations shows.
As to whether those sentiments are prescient, that remains to be seen. The Bank of Jamaica, BOJ, will announce the next interest rate decision of its Monetary Policy Committee on August 20.
The Survey of Businesses Inflation Expectations conducted between May 20 and June 14 by Statin on behalf of the BOJ, asked respondents whether they believed the central bank’s overnight policy rate, now at 7.0 per cent, would remain stable, fall or rise over the next three months. The bank has maintained that policy rate since November 2022.
“Notably ... 25 per cent of respondents from the financial sector expected the rate to be marginally higher,” BOJ said. “This reflected an increase, compared to the previous survey.”
It also marked the highest level of such sentiment in at least a year, signalling that more members of the financial sector anticipated heightened inflation or increased market volatility, and that BOJ would seek to counter the effects with a rate hike.
However, most respondents hold a different view.
Overall, nearly two-thirds, or 63 per cent, expect the bank’s policy rate to remain the same over the next three months. That’s up from 54 per cent. The figure fluctuated as less persons expect rates to fall, amounting to 12.5 per cent of respondents, which was down from 18 per cent in the previous survey. More expect rates to rise slightly, at 25 per cent, compared to 22.7 per cent in the previous survey.
The survey findings suggest that these changing concerns are linked to both present and future business conditions, which have shown signs of deterioration.
The Present Business Conditions Index dropped to 116.1 from 125.2 in the previous survey, signalling a decline in confidence about current economic conditions. The Future Business Conditions Index also declined, falling to 137.5 from 145.0, further highlighting concerns about the economic outlook.
The BOJ’s report attributes these declines to a reduction in the number of respondents who believe that business conditions are improving.
“The decrease in the Present Business Conditions Index mainly reflected a decrease in the percentage of respondents who said that conditions are ‘better’,” the central bank said.
The Inflation Survey 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/salaries. The central bank says the responses assist in charting future policy.
The most recent survey includes responses from 304 professionals.
The increased anticipation of higher interest rates suggests that businesses are preparing for potential challenges, including rising costs and tighter financial conditions.
The perception of inflation control improved in June, relative to the April 2024 survey. Respondents lowered their expectation for 12-month inflation from 8.2 per cent to 7.6, from 8.2 per cent.
The actual outturn for inflation in June was 5.4 per cent. The effects of Hurricane Beryl are expected to weigh on July’s inflation outturn. The powerful storm wrought damage on Jamaica on July 3, and recovery efforts are ongoing.
Respondents forecast the exchange rate to depreciate at a faster pace, compared to the previous survey.
“In the June 2024 survey, the exchange rate was anticipated to depreciate by 0.6 per cent, 0.9 per cent and 1.3 per cent for the 3-month, 6-month, and 12-month time horizons, respectively. This represents a faster pace of depreciation when compared to the previous survey,” BOJ said.
The Jamaican dollar is currently trading in the $157 band against the US dollar.