The Jamaica Manufacturers and Exporters Association (JMEA) has said the latest interest rate increase by the Bank of Jamaica (BOJ) puts the Jamaican economy at the risk of a recession.
The JMEA also disagrees with the central bank that the latest measures are likely to cause demand in the economy to fall and limit the ability of businesses to pass on price increases to consumers.
Local manufacturers have been experiencing price increases since 2020 and often have not fully passed these increases to consumers but will have to pass on price increases at some point, the JMEA said.
The BOJ on Friday increased its policy interest rate to five per cent per annum, reflecting a cumulative increase in the policy rate of 450 basis points (bps) since October 2021.
In a statement, following the announcement, the JMEA said it is “extremely concerned that the tightened monetary policy stance of the BOJ presents a risk to Jamaica’s short to medium-term economic growth prospects.”
The JMEA said there is great uncertainty with Jamaica’s macroeconomic climate given spiralling prices and increasing interest rates.
It further explained that the current supply-chain crisis requires industry players to access financing to run high inventories, particularly at a time when the world is on the brink of famine and countries hug their supplies.
“Continued interest rate hike does not facilitate business but will only kill operations,” the JMEA said.
According to the JMEA, another interest rate hike puts the construction industry at risk. It said mortgage rates had climbed to 8.5 per cent before this latest rate increase.
The JMEA also noted that the US is at a point where further increases in interest rates could lead to a recession in that market. As such, looming external risks may cause a downturn in tourism and a reduction in the income of Jamaicans living in the US, which will impact remittances.
Those risks, coupled with domestic matters, would undoubtedly derail any possibility of the economy meeting its growth target, between two and four per cent in FY2022/23, it added.
“Our people are suffering from underemployment and increased cost of food, energy, and transportation, and we cannot afford to derail the small improvements in the economy currently taking place,” the JMEA said.
Like other countries, Jamaica still faces adverse macroeconomic conditions due to the COVID-19 pandemic, supply chain, and logistics crises, now aggravated by the Ukraine-Russia war.
Jamaica’s major trading partners, the US and the UK, have also seen a rise in inflation. For instance, in the US, annual inflation accelerated to 8.5 per cent in March of 2022, the highest since December 1981; Canada was 6.7 per cent, the highest since 1997; the UK increased to seven per cent, the highest since March 1992.
“Jamaica is not alone, but we are extremely vulnerable given our economic dependency on these large economies and years of minimal growth,” the JMEA said.