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Should The BOJ Cut Interest Rates?
By Joshua Rowe Sunday Finance contributor
Sunday, March 08, 2009
The inflation rate moderated over the last three months and the local currency has stabilised over the last three weeks. Consequently, there have been increased calls for the Bank of Jamaica (BOJ) to reduce interest rates from its highest level since 2004. The question now is, "Are the calls justified or are they simply based on emotions?"
To answer these questions, it is important to establish that while inflation levels and exchange rate stability are important determinants of interest rate movements; by themselves they are not sufficient in determining the appropriate level of interest rates. It is only after one has established whether or not interest rates are appropriately set that one can objectively determine what the next interest rate move should be as well as the likely magnitude.
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By Joshua Rowe Sunday Finance contributor
Sunday, March 08, 2009
The inflation rate moderated over the last three months and the local currency has stabilised over the last three weeks. Consequently, there have been increased calls for the Bank of Jamaica (BOJ) to reduce interest rates from its highest level since 2004. The question now is, "Are the calls justified or are they simply based on emotions?"
To answer these questions, it is important to establish that while inflation levels and exchange rate stability are important determinants of interest rate movements; by themselves they are not sufficient in determining the appropriate level of interest rates. It is only after one has established whether or not interest rates are appropriately set that one can objectively determine what the next interest rate move should be as well as the likely magnitude.
...more