US embassy cable - 05KINGSTON390

UNCLAS KINGSTON 000390 
 
SIPDIS 
 
STATE FOR WHA/CAR/ (WBENT), WHA/EPSC (JSLATTERY) 
 
SANTO DOMINGO FOR FCS AND FAS 
 
TREASURY FOR L LAMONICA 
 
E.O. 12958:  NA 
TAGS: ECON, EFIN, JM 
SUBJECT: Jamaican Interest Rates Plunge 
 
 
1.  The Bank of Jamaica (BOJ) has reduced interest rates 
on all its open market instruments effective February 7, 
2005.  While this reduction is the first for 2005, it 
represents the twelfth such decline in just over a year. 
Interest rates have moved from 21 percent in November 2003 
to the current rate of 13.5 percent.  These latest 
reductions, which range from 0.3 to 0.5 percentage points 
on short and long-term instruments, respectively, have 
also brought interest rates to their lowest levels in over 
a decade. 
 
2.  The rate adjustments were not surprising, as declining 
treasury-bill yield had already signaled the markets' 
anticipation of further cuts reflecting the continued 
improvement in the country's macro-economy.  In 
particular, there have been robust foreign exchange flows 
from tourism and foreign investment.  This has served to 
shore up stability in the foreign exchange market as well 
as adding to the stock of Net International Reserves 
(NIR), which now stands at USD 1.9 billion, a level the 
BOJ suggests is more than adequate to underwrite near term 
stability.  The foreign exchange market is now 
experiencing its longest period of stability in over six 
years and the stock of NIR is at its highest level in over 
three years. 
 
3.  In addition to the foregoing, the Bank of Jamaica is 
also upbeat about the near term prospects for economic 
growth, particularly given the rebound in agriculture 
following Hurricane Ivan.  The Bank is also forecasting a 
marked slowdown in inflation during the first quarter of 
2005 and a return to single digit inflation during fiscal 
year 2006/07. 
 
TIGHE