By: Staff Writer
July 2, 2021
A senior Jamaican investment advisor said that countries in the region that have floating exchange rate regimes will need the “ammunition and foreign exchange” in order to build up outlets for inflation pass through as it may hit 7 percent region wide.
Sean Newman, executive vice president, and chief investment officer of Sagicor Group Jamaica, speaking on a Bloomberg hosted webinar “The Path to Recovery in the Caribbean” on Wednesday said it is important to distinguish between the fixed rate regimes and the floating exchange regimes that analysts are comparing economies with when thinking about inflation pressures in the Caribbean and Central American region.
He added: “By and large, Caribbean economies have fixed exchange rates, so the inflation pass through will be more muted if not very minimal in these in these countries.
“That of course comes at the cost of less competitiveness and the ability to respond and react and be more aggressive in the face of variants of the of the virus and then your own economy, so for those economies that have floating exchange rates that will be the key pressure point in determining the inflation pass through.”
Mr Newman further urged policy makers in floating exchange regimes to maximise the ammunition needed along with foreign exchange needed to build up the outlets to which the inflation pass through can be distributed.
Further warning on inflation pressures being a challenge for post COVID-19 growth, another senior financial expert warned that inflation pressures coming out of the pandemic paints a “complex” and “complicated” picture for Caribbean and Central American economies and warns that inflation pressure is “resilient” and slightly different than in developed markets.
Claudia Castro, director, Fixed Income Research at Invesco said that “inflation, perhaps is a very complicated picture. Right now it’s proving more resilient with supply pressures.
“I think inflation is really different vis a vis developed market countries because of inflation targeting regimes and the role of credibility of the central bank and its expectations.”
Gabriel Lozano, chief economist for Mexico and Central America at US investment firm J. P. Morgan, chimed in and said “related to inflation is monetary policy, which in many countries has been now turning the corner towards a more hawkish stance, probably that is something that we will need to start entertaining in some countries.
“But I’d say that, for instance, now we revised inflation, also to levels closer to 7 percent at the end of this year,” further reckoning that regional central banks will have to attend to this projected inflation rate sooner rather than later.
However, there is little central banks on a fixed rate regime can do with regard to monetary policy manipulation. This is something that is out of the hands of central bankers in the region.
Ms Castro adding, adding to what Mr Lozano said and further said that government’s do have “important tools” in explaining to their citizenry about what the inflation pressures are. “Informing them what is happening and what they can expect, and in perhaps the central bank’s, by managing expectations in this way, will not even need to hike rates more.”