"Whatever interest rate path the bank pursued was absolutely correct," Latibeaudiere told reporters and market analysts at a briefing on Wednesday.

In the past month, Latibeaudiere, the Bank of Jamaica (BOJ) governor has twice cuts rates on the Bank of Jamaica's benchmark instruments, by a total of 2.5 percentage points.

But even with the cuts, which brought interest rates down to 19 per cent at July 30, they are still tracking more than four points above the 14.7 per cent that prevailed one year ago.

BOJ analysis

Analysts speculate that BOJ will cut rates by another 250 to 350 basis points before the year is out.

In the wake of last year's credit crisis on Wall Street, Jamaican brokages faced margin calls from US investment banks, from which they had borrowed, using Jamaican government bonds as collateral.

The resultant scramble for foreign exchange to meet these obligations put pressure on the Jamaican dollar, which last year slid by 13 per cent against the US dollar, compared to average annual decline in recent years of around four to five per cent.

One of the tools to which Latibeaudiere quickly resorted in defence of the local currency was interest rates, which reached a high of 24 per cent last December on a one-year instrument that has seen been retired.

By the end of the first quarter the foreign exchange market, helped by the BOJ's monetary measures as well as a special window at the central bank through which state companies source foreign exchange, was showing relatively stability.

In fact, in the quarter to the end of June the Jamaican dollar depreciated by only 0.29 per cent.

Yet, even with the stability Latibeaudiere resisted increasingly public, and sometimes trenchant, suggestions from Finance Minister Audley Shaw for rates to be cut.

Lower rates

The chafing Shaw argued that with the environment capable of accommodating lower rates, keeping them high not only increased the cost of servicing the country's $1.2 trillion debt, but undermined private borrowing, and thereby the prospects for investment and economic growth.

However, Latibeaudiere held out. The recent cuts significantly, coincided with a clear undertaking by the administration that it would enter an agreement with the International Monetary Fund for US$1.2 billion in credit.

At Wednesday's briefing, Lati-beaudiere argued that lower interest rates represented only one side of the equation for economic stability and growth - a seemingly clear imputation of the need for the finance ministry to bring the fiscal accounts into equilibrium.

"We are saying that on the other side, is that we have a stable foreign exchange market and inflation has come down," he said.

It was these, he suggested, that fed into the recent rate cuts.

"It happened because of the nature of the monetary policy we pursued, not by accident," the BOJ governor said.

business@gleanerjm.com