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Press Release

JCC against further Interest Rate Increases

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The Jamaica Chamber of Commerce supports an independent central bank and the overall policy of inflation targeting. While we understand the concern about rising inflation expectations, which was the key reason the Bank of Jamaica raised the policy rate, we are not in favour of a further rise in interest rates this year. We note that the Bank of Jamaica is obliged to achieve its principal inflation objective “in a manner that recognises the growth and employment objectives” of the government. We note that some key authorities, including the IMF and the US Federal Reserve, see the current spike in inflation as “transitory” due to supply chain issues caused by the pandemic. Several emerging market central banks have indeed raised interest rates this year. However, Jamaica is almost unique in the world in terms of our fiscal tightness, including in comparison to developed countries, which, for the most part, have not yet raised their interest rates as they view the current rise in inflation as transitory. As long as the Jamaican economy remains depressed due to the COVID shock, we would suggest the Bank of Jamaica follows the developed country timetable to interest rate tightening, particularly that of the US. In addition, a true partnership approach to support the banking system is still needed so it can, in turn, continue to support both companies and individuals still badly affected by the COVID crisis. We strongly support the planned move by the Bank of Jamaica to minimise unnecessary and erratic movements in the exchange rate. The response of businessmen to excessive exchange rate volatility, hedging their foreign exposure, is by increasing the foreign exchange rate at which they price their goods, often by between $5 and $7 above the current exchange rate. We have argued for many years that this response, while entirely rational from an individual perspective (as Governor Byles observed at the recent Bank of Jamaica press conference), is sub-optimal from a policy perspective. We believe the Central Bank has more than sufficient reserves to smooth these predictable capital flows, and done correctly would cost it neither reserves nor credibility.