Manufacturers losing faith in BOJ; say rate hike near reckless

The Bank of Jamaica (BOJ) has been criticised as borderline reckless for pushing up the benchmark policy rate on overnight deposits with the central bank by deposit-taking institutions (DTIs) by another 50 basis points to 6.5 per cent, effective September 30.

It was the ninth rate rise since September last year and its sixth in 2022.

The move, aimed at cooling inflation and keeping the local currency stable, is a strong signal that the central bank is not satisfied with the rate of inflation fall-off and is taking a cue from its global counterparts that have signalled stronger monetary policy tightening up to earlier this month.

The BOJ added that the latest rate rise, which has now added 600 basis points to the policy rate over the past 12 months, and which critics say is sending loan rates higher for consumers and businesses, is also intended to give a boost to the deposit rate that it says has lagged behind.

It said it would continue other measures to contain Jamaican-dollar liquidity expansion and maintain relative stability in the foreign exchange market.

“While the key drivers of inflation and other economic indicators are trending in the right direction, conditions have not sufficiently solidified to ensure that inflation is sustainably on a downward path,” the BOJ said in its decision.

It noted that core inflation at August (with fuel and food prices stripped out) of 8.3 per cent was marginally higher than the July out-turn.

Reacting to the latest BOJ decision, Jamaica Manufacturers and Exporters Association (JMEA) President John Mahfood expressed disappointment in the move and said his association would not be keeping quiet about the matter.

“I am beginning to lose confidence in the BOJ and how they make their decisions. They are bordering on being reckless,” he told The Gleaner in an interview Thursday evening.

Mahfood said that, in its previous decision, the BOJ indicated that it had reached some level of comfort with the interest rate level and would have made future decisions based on the inflation out-turn. Mahfood said the levelling off in inflation does not justify the latest policy rate hike.

In its August 18 monetary policy decision, in which it tacked on another half per cent, pushing the policy rate to 6.0 per cent effective August 19, the central bank's monetary policy committee had signalled that it was prepared to pause its monetary policy tightening if the incoming data continued to reflect a downward track for inflation.

That was against the backdrop of annual point-to-point inflation rate of 10.2 per cent at July, coming down from 10. 9 per cent in May and June, and its most recent peak of 11.8 per cent in April. The out-turn for August was stable, remaining at 10.2 per cent.

Faced with the flat trajectory of the August unchanged inflation number, and anticipating another rate increase in the BOJ's September decision, the business groups issued a joint statement cautioning the central bank about the potential of severe risk to the economy from hikes.

The BOJ was early out of the blocks with its rate rises, compared to its United States, British, and European counterparts, but has been more tempered in its tone about the possibility of big rate hikes continuing into the future.