Making Finance Serve the Folk

How would you evaluate the bank’s contribution to the financial sector and economy?

The inflation rate as of September 2017 stood at 4.6%, which is right within our target of 4-6%. This is a significant decline from 13.3% in March 2010. Surveys of businesses’ inflation expectations conducted by the Statistical Institute of Jamaica (STATIN) on behalf of BOJ have consistently shown an expected inflation rate below our actual target. Low inflation is not achieved by the central bank alone; it requires a supportive environment, which we have had. We have a high proportion of trade in imports and exports to GDP so it matters significantly to have that balanced. That itself creates an opportunity for us to guide the monetary environment toward lower interest rates that contribute to the broader objective, which is sustained economic growth and job creation. Up until 3Q2017, we had nine consecutive quarters of growth. The dip in 3Q2017 is a reminder of the importance of progressing with the reform agenda. We have seen positive signs with employment, with some 30,000 new jobs created in 2016 and more than 20,000 in the first three quarters of 2017. The unemployment rate for July 2017 stood at 11.3%, falling significantly, though still too high. This fall came from job creation, as more workers are joining the labor force. We look forward to sustained growth driven by reforms that attract investment, which is quite different from public sector-led growth.

What reforms are currently critical?

We require a number of supply-side reforms that are all incrementally important. In terms of customs, for example, we are an open economy, and the ease of crossing the border is important. However, a well-regulated border is also key. We need to find a way to do that in a modern world using technology, such as the port community system and implementation of the Automated System for Customs Data (ASYCUDA), which reduces red tape. There is soft infrastructure being done by the government, such as updating the customs law, as well as hard infrastructure by private sector interests, like the dredging of the port of Kingston. BOJ also has an important role to play in the financial sector as a supervisor of banks. We also oversee overall financial system stability through a statutory committee called the Financial System Stability Committee that has representatives from the big financial sector regulators and policymakers on it. This enhances the macroprudential oversight we have in place in Jamaica. We also continue to reform the liquidity provision mechanisms to modernize and introduce more market pricing.

How do you plan to continue supporting the improvement of macroeconomic indicators in Jamaica in the coming years?

The number-one thing is to deal with the reform and modernization of BOJ, specifically the changes that need to be made to transition BOJ’s policy operations to fully fledged inflation targeting. The government is currently considering proposals for modernizing the central bank and is likely to proceed with them. This will put the authorities in a position to allow stakeholders to think about money in the context of low inflation and rely on that over the medium term. The value of that is that with the focus of monetary policy on inflation rather than the exchange rate, we then have the opportunity for the central bank to push further in financial deepening. This allows the financial sector around it to innovate and adds many things that people are seeking in terms of more efficient regulation. We can have a better environment by changing some of these rules and regulations, which is a prize worth having since the financial sector can be a drag on an economy and at times perpetuate certain types of behavior that sap value. However, a financial sector that serves an economy effectively and efficiently can resemble the oil in an engine.