1. The Commodity Price Bomb and Jamaica John W. Robinson Bank of Jamaica

2. Key Issues Vulnerabilities Impact of Commodity Prices Monetary framework and response Complementary Measures Outlook

3. Vulnerabilities- Openness Heavily dependent on trade and consequently on world market conditions Exports typically amount to 45% of GDP Imports normally amount to 60% of GDP C/A gap reduced by remittances to ~5% Pvt capital + Official borrowing allow for reserve accumulation

4. Energy Dependence

5. Major Commodity Prices Years FY2006/07FY2007/08FY2008/09 Oil (WTI) /bbl64.7782.2798.31 % change8.1727.0219.49 HRW Wheat189.08309.33481.67 % change23.7063.6055.71 SRW Wheat159.05298.28499.58 22.3887.5467.49 Corn /mt121.21176.65240.15 % change36.7145.7435.95 Soybeans266.68447.11609.62 % change3.9467.6636.35 Rice303.72359.38536.97 % change6.6818.3249.42 Aluminium /mt2664.922623.552670.28 % change31.36-1.551.78

6. Exports

7. Relief Valves Petrocaribe Remittances FDI Reserves

8. Financial Flows

9. Vulnerability – Debt Overhang

10. Monetary Policy Framework Base money targets Exchange rate channel dominant Joint use of open market operations and forex market intervention to meet targets Supported by well developed securities market Transitioning to IT lite

11. Inflation Path

12. Inflation Target Missed

13. Monetary Response Special instruments to tighten liquidity Allow controlled depreciation to temper demand As TOT continues to deteriorate, signal further tightening to contain second round impact Communicate expectations

14. Monetary Response

15. Competitiveness maintained

16. Other Responses Welfare support via initial subsidization of basic foods Targeted income support of most vulnerable Strong Government support of expansion of domestic food supply Energy conservation and diversification Focus on expanding earnings from tourism

17. Lessons Need to reduce vulnerability to external shocks generally Food security a real issue Monetary policy will be a costly substitute where structural reforms are the real solution.