EPOC supports flexible exchange rate, inflation targeting

The Economic Programme Oversight Committee (EPOC) has come out in support of Jamaica's flexible exchange rate and inflation-targeting policies.

"The economic reform pro-gramme includes a commitment to a market-determined and flexible exchange rate, as the Government of Jamaica (GOJ) and the monetary authorities move towards full-fledged inflation targeting within the context of a resourced, modernised and autonomous central bank," the committee said in a press statement yesterday.

"EPOC believes these reforms to monetary policy that have taken place over the last two years, when looked at holistically, provide the BOJ (Bank of Jamaica) with the toolkit to maintain price stability."

According to EPOC, these monetary reforms include:

1. BOJ changing to an overnight signal policy rate.

2. The introduction of B-FXITT auction mechanism.

3. The accumulation of non-borrowed reserves.

4. A phased reduction of surrender requirements for authorised dealers and cambios.

5. A BOJ FX intervention policy.

6. Inflation targeting.

Under the International Monetary Fund (IMF) standby arrangement, the current inflation target range is 3.5-6.5%, which converges to the GOJ-BOJ inflation target range of 4-6% in 2019.

 

PRESERVATION OF PURCHASING POWER

 

EPOC said the preservation of purchasing power is the practical relevance of the BOJ switching to an inflation-targeting regime - the programme target band for inflation being 3.5 -6.5%.

"Should the upper or lower limits be breached, the monetary policy consultation would be triggered, which would require BOJ to consult with the IMF executive board and give reasons for deviation and outline a proposed policy response. This upper limit of 6.5% provides protection for the Jamaican businesses and consumers," the statement said.

 

COMPETITIVE JAMAICAN ECONOMY

 

Keith Duncan, EPOC co-chairman, noted that the other key objective of the monetary reforms is to ensure that Jamaica has a flexible exchange rate that adjusts in line with the fundamentals of the Jamaican economy and global market conditions.

"This is critical to Jamaica being a globally competitive economy that can attract capital that will lead to sustainable job creation and growth," Duncan said.

"It is important to note that the BOJ possesses the tools through the BFXITT auction mechanism and its intervention policy to intervene during periods of excess volatility. This was evident in the BOJ flash auction which saw the BOJ selling US$40 million into the market on August 24, 2018."

EPOC acknowledged, however, that while these policy reforms will promote healthy debate, it believes that accurate and timely release of information to the public from the policymakers in general, and the BOJ in particular, is crucial to the maintenance of confidence.

"EPOC, therefore, acknowledges the minister of finance, Dr Nigel Clarke, for releasing the correspondence between himself and the BOJ on developments with inflation targeting," the press statement said.

 

BUILD ON ECONOMIC PROGRAMME SUCCESSES

 

Duncan, in underscoring the significant strides that have been made under the programme, said: "EPOC is confident that the monetary policy reforms will build on the successes to date, which have led to a reduction in debt from 147% to currently 105% of GDP over the past five years and the highest levels of net international reserves ever in Jamaica's history of over US$3 billion."

He added, "EPOC supports these reforms and encourages all Jamaicans to do the same, even through these challenging times, as we continue to strive for greater levels of growth while building a strong and resilient economy for all Jamaicans."