In its fourth reduction in less than six weeks, Jamaica's central bank yesterday clipped one percentage point from its benchmark interest rates, bringing its six-month certificates of deposit (CD) to 17 per cent.

"The adjustment to policy rates follows the better-than-expected inflation out-turn for August, which showed a further drop in the 12-month point-to-point inflation to 6.1 per cent from seven per cent in August," the Bank of Jamaica (BOJ) said.

The BOJ also cited stability in the foreign-exchange market, improvement in domestic agricultural output, a moderate growth in money supply - all pointing to the likelihood of single-digit inflation this fiscal year - as contributing to its decision.

Aggressive cutter

The central bank, which had faced criticism from businesses and caused tension with the finance ministry for holding interests rates, has been somewhat of an aggressive cutter recently.

On July 24, having previously removed one-year instruments from the market, the BOJ cut the benchmark 180-day CD by one percentage point to 20.5 per cent, then followed a week later with another 1.5 percentage point reduction,

On August 20, another point was sliced from the rates before yesterday's movement.

As it did yesterday, the central bank had posited the easing of inflationary impulses and exchangerate stability as the reason for the start of the latest round of cuts - rather than a response to government fiat.

However, the BOJ's governor, Derick Latibeaudiere, would have also had the fillip of an additional US$320 million in special drawing rights (SDRs) at the International Monetary Fund (IMF), under a programme backed by G-20 nations earlier this year.

His confidence would have been further bolstered by Jamaica's imminent agreement with the IMF for US$1.2 million in loans under an adjustment programme now being negotiated. That pact is expected to be finalised in October, but the Government is already preparing by adjusting its budget to bring the fiscal deficit in line with the original 5.5 per cent of GDP.

The revised budget is expected to be tabled in Parliament next week, but Prime Minister Golding had told ministries to slash by 20 per cent, or $16.8 billion, their projected spending in programmes.

Public-sector burden

Golding has resisted calls for a cut in the public sector, whose wage bill of $127 billion accounted for nearly 23 per cent of the original Budget or approximate 11 per cent of GDP. He, however, has frozen public sector wages.

The IMF has told the Government to lower the public-sector wage bill to around nine per cent of GDP.

In yesterday's statement, the central bank said that improved prospects for inflation and the accompanying macroeconomic stability were "being reflected in market rates, with the downward trend in Treasury bill yields and other short-term rates.

"The easing of monetary policy is supported by the relatively strong position of the net international reserves of the Bank of Jamaica, which currently stand at US$1.95 billion," the central bank said.

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Left: Shaw ... criticised the BOJ's earlier stance on rates. Right: Latibeaudiere ... had held tough on rates before recent reductions. - File

Schedule of BOJ rates

Tenor	30-days	60-days	90-days	120-days	180-days
New rates	12.50%	13.00%	15.50%	15.70%	17.00%
Previous rates	13.50	14.00	16.50%	16.70%	18.00%