BOJ Caught Off-Guard by Lower December Inflation

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Deputy Governor of the Bank of Jamaica (BOJ) John Robinson, says the very low inflation in December took them by surprise.

Mr. Robinson says the central bank had already seen signs that inflation could fall below its target of 4 to 6 per cent, but didn’t expect it to fall that low.

Inflation in December was recorded at 2.4-per cent.

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Mr. Robinson says although there are signs that demand for consumer goods is increasing, that demand hasn’t passed through to an increase in prices. He says the appreciation of the Jamaican dollar was one of the reasons prices didn’t go up as much as expected.

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Mr. Robinson says he believes more lending by commercial banks to the business sector will help to bring inflation back to its target range, which will also be an indication that economic growth is picking up.

In order to encourage this, the BOJ lowered its policy rate to an all-time low of 1-point-75 percent in December.

Mr. Robinson says the central bank’s policy rate signals a change in money market rates, which should translate into lower commercial lending rates. He says the BOJ may slash rates even further, if needed.

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Meanwhile, Mr. Robinson says there’s also a risk that Jamaica could again miss the inflation target later this year. He says there’s a possibility that as agriculture and oil prices go back up, inflation could rise higher than 6-percent.

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