By Dennise Williams, Staff Reporter
Latibeaudiere
THE BANK of Jamaica (BoJ) continued to maintain a tight rein on the money supply in the quarter ended September 2004, which was characterised by shocks to the system from two hurricanes and rising oil prices.
Speaking at the BoJ's quarterly briefing held at its Nethersole Place headquarters on Thursday, BoJ Governor, Derick Latibeaudiere, reiterated the central bank's position of defending the dollar in light of challenges facing the economy. "We are unapologetic that we will keep the market stable and not allow the currency to depreciate; especially when there is so much uncertainty in the marketplace with world prices and oil prices."
OIL PRICES
While there has been talk that oil prices could reach US$60 per barrel, Mr. Latibeaudiere stated, "We have done projections for the impact of oil prices on our balance of payments and inflation targets up to a price range of US$49.19 per barrel. If prices rise to US$60 per barrel, then our estimates would be an average for the year as a whole. Obviously, a rise to that level would be more negative than what we projected."
According to BoJ estimates, the original forecast saw oil prices at US$38 per barrel. This would have meant a headline inflation rate of nine per cent and a 2004/2005 fuel import bill of US$980.4 million. If oil prices were to settle at US$49.19 per barrel, then headline inflation would rise to between 10.2 to 11.2 per cent with the fuel import bill coming in at a staggering US$1.2 billion. However, the country's fuel situation will be further challenged by the recent fire damage to the Petrojam facility, Jamaica's only crude oil
refinery.
"We do need a little time to do an assessment of the damage on the economy. However, it is expected to have a fairly significant impact," the Governor said.
DEMAND FOR HARD CURRENCY
Hence, the BoJ has to keep a close eye on the demand for hard currency. In spite of the rising oil prices and even the two hurricanes, Charlie and Ivan, the central bank has been able to grow the net international reserves. As at November 10th, the NIR stood at US$1.8 billion. At the end of the previous fiscal year, March 2004, NIR was US$1.6 billion. The Governor said, "This comfortable figure is the result of purchasing about US$180 million from the Government by way of direct purchase of the proceeds of two US dollar-denominated bonds from the Government and from the financial market."
Interestingly, the BoJ also has foreign assets of US$113 billion as at October 27 as opposed to US$73 billion at the same period in 2003, which again puts the central bank in a strong position to defend the currency. Yet for the quarter ending September 2004, the BoJ was not called to do so regularly.
The central bank states, "The improvement in the NIR also reflected the fact that direct sales to the market were relatively low, as there was an adequate supply of foreign currency in the market during the quarter. Confidence in the domestic economy during the September quarter continued to be strong, as evidenced by the sustained demand for Jamaican dollar assets including the BoJ's open market instrument. However, the Bank remained cautious in its monetary policy stance in light of rising oil prices and hence, reduced interest rates once during this period."
