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Editorial | Concerned about BOJ rate hike

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Editorial | Concerned about BOJ rate hike

Or, maybe it was the other way around. The public is unlikely to know. For the new law which makes price stability, or the management of inflation, the core objective of the central bank, does not require that the BOJ publish detailed minutes (as opposed to broad summaries of the reasons behind its actions) of meetings of the MPC. But it was in furtherance of its mandate that it imposed the rate increase, the central bank said.

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“… The MPC noted that inflation had breached the upper limit of the bank’s target range in August, and that the risks of inflation continuing to breach the target over the next year have intensified,” the BOJ reported. “The recent significant increases in international commodity prices and shipping costs have had a stronger-than-expected pass-through to local prices. These increases have contributed to a further rise in inflation expectations, which were already elevated.”

Specifically, at the end of August point-to-point inflation was 6.1 per cent, against the BOJ’s four to six per cent target for this 2021-2022 fiscal year, which runs to the end of next March.

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MISREAD AND OVER-REACTED While we acknowledge the BOJ’s argument, including its references to other central banks that have also raised rates, this newspaper is not persuaded of the efficacy of timing of the action. Indeed, like the island’s leading private-sector groups, we fear that the Bank of Jamaica may have misread and over-reacted to the price rises in the Jamaican economy. We are concerned that the prescribed medicine, if prolonged, could be more harmful than the ill it is intended to cure

The surprise of the Bank of Jamaica’s move this month to increase its policy rate by 100 basis points, to 1.5 per cent, is that the decision was unanimous. Which means that the two ‘independent’, or non-staff, members of the central bank’s Monetary Policy Committee (MPC) – former IMF official David Marston and University of the West Indies economist Nadine McCloud – voted with the three BOJ officials, including the governor, Richard Byles.

Or, maybe it was the other way around. The public is unlikely to know. For the new law which makes price stability, or the management of inflation, the core objective of the central bank, does not require that the BOJ publish detailed minutes (as opposed to broad summaries of the reasons behind its actions) of meetings of the MPC. But it was in furtherance of its mandate that it imposed the rate increase, the central bank said.

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“… The MPC noted that inflation had breached the upper limit of the bank’s target range in August, and that the risks of inflation continuing to breach the target over the next year have intensified,” the BOJ reported. “The recent significant increases in international commodity prices and shipping costs have had a stronger-than-expected pass-through to local prices. These increases have contributed to a further rise in inflation expectations, which were already elevated.”

Specifically, at the end of August point-to-point inflation was 6.1 per cent, against the BOJ’s four to six per cent target for this 2021-2022 fiscal year, which runs to the end of next March.

Operation Underground Railroad USA

MISREAD AND OVER-REACTED While we acknowledge the BOJ’s argument, including its references to other central banks that have also raised rates, this newspaper is not persuaded of the efficacy of timing of the action. Indeed, like the island’s leading private-sector groups, we fear that the Bank of Jamaica may have misread and over-reacted to the price rises in the Jamaican economy. We are concerned that the prescribed medicine, if prolonged, could be more harmful than the ill it is intended to cure.

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