Despite growing condemnation, the Bank of Jamaica has stood by its decision to raise interest rates in order to tame inflation.
The central bank has decided to raise its policy rate which is the interest given on deposits it holds for financial institutions by one percentage point to one-point-5 per cent, a two-hundred per cent increase.
Both the Jamaica Manufacturers’ and Exporters’ Association, JMEA, and the Opposition have come out against the move fearing a hit to the country’s economic recovery.
However, in his first-ever meeting in front of the Parliament’s Public Administration and Appropriations Committee, Central Bank Governor, Richard Byles answered pointed questions from lawmakers regarding the decision.
The move is aimed at reducing the country’s inflation rate which has breached the upper limit of 6 percent.
The JMEA called the decision misguided.
The Opposition was no less strident describing the decision as unreasonable.
PAAC Chairman, Fitz Jackson questioned the BOJ Governor why this was the route taken rather than increase its reserve requirement to limit available liquidity in the market.
However, Mr. Byles says it used all tools available to tame inflation but going the direction of affecting would have to be a last resort when all others have failed.
There’re fears from the private sector and the opposition that the move will debilitate the economy and further impoverish the most vulnerable in society.
They argue that this could result in higher lending rates to consumers including small manufacturers and exporters, thus affecting their ability to pay their bills and keep staff employed.
However, the Central Bank Governor says its mandate is tackling inflation which has been described as the greatest tax on the poor.
Mr. Byles says it arrived at its decision as to the best possible course with the least disruption.
Meanwhile, speaking with Nationwide News, Finance Minister, Dr. Nigel Clarke gave some context which he noted might have influenced the decision of the Bank of Jamaica.
He says there is an unavoidable trade-off but the long-term effect on the economy from inflation must be guarded against.
While not directly pronouncing on the decision by the BOJ, Dr. Clarke says the Central Bank must look further into the future than even lawmakers will consider.
Meanwhile, Dr. Clarke says the international context must not be ignored where inflation has been on the rise and as a consequence, Central Banks have increased interest rates.
Dr. Nigel Clarke, Minister of Finance and the Public Service.