The Jamaica Manufacturers and Exporters Association (JMEA) said the latest interest rate hike by the Bank of Jamaica (BOJ) puts the Jamaican economy at risk of recession.
The JMEA also disagrees with the central bank that the latest measures are likely to depress demand in the economy and limit the ability of businesses to pass on price increases to consumers.
Local manufacturers have experienced price increases since 2020 and often have not fully passed those increases on to consumers, but will have to pass on the price increases at some point, the JMEA said.
The BOJ raised its policy rate to 5% per annum on Friday, 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 was “extremely concerned that the BOJ’s tightened monetary policy poses a risk to Jamaica’s short to medium term economic growth prospects.” .
The JMEA said there was great uncertainty with Jamaica’s macroeconomic climate given spiraling prices and rising interest rates.
He further explained that the current supply chain crisis is forcing industry players to access funding to manage high inventories, especially at a time when the world is on the brink of famine and countries are squeezing their supplies.
“Continued rising interest rates do not make business easier but will only kill operations,” JMEA said.
According to the JMEA, a further rise in interest rates endangers the construction industry. He said mortgage rates had climbed to 8.5% before this latest rate increase.
The JMEA also noted that the United States is at a point where further interest rate hikes could lead to a recession in this market. Thus, looming external risks could result in slower tourism and reduced income for Jamaicans living in the United States, which will impact remittances.
These risks, coupled with domestic issues, would undoubtedly derail any possibility of the economy reaching its growth target of between 2 and 4 percent in the 2022/23 financial year, he added.
“Our people are suffering from underemployment and the rising cost of food, energy and transportation, and we cannot afford to derail the small improvements in the economy that are underway,” said the JMEA.
Like other countries, Jamaica continues to face unfavorable macroeconomic conditions due to the COVID-19 pandemic, supply chain and logistics crises, now aggravated by the war between Ukraine and Turkey. Russia.
Jamaica’s major trading partners, the United States and the United Kingdom, have also experienced rising inflation. For example, in the United States, annual inflation accelerated to 8.5% in March 2022, the highest since December 1981; Canada was 6.7%, the highest since 1997; in the UK rose to 7%, the highest since March 1992.
“Jamaica is not alone, but we are extremely vulnerable given our economic dependence on these major economies and years of minimal growth,” JMEA said.