rent - seeking and portfolio hedging activities. in addition, high and variable inflation impeded growth as it was difficult for economic agents to undertake proper long - term planning. in such an inflationary and consequently unpredictable environment, it was impossible to sustain low interest rates as savers demanded a premium on their resources. main elements of the current economic strategy to reverse the cycle of large fiscal deficits and unsustainable debt, the government embarked on a comprehensive economic transformation programme beginning at the end of 2009 and supported by the international monetary fund and other international development partners. the objective of the programme is to secure long - term macroeconomic stability, thus creating an environment that is conducive to the low interest rates and long - term investment that are critical requirements for sustainable economic growth. the main pillars of the transformation programme are : eliminating the fiscal deficit over a four - year period and institutionalising prudent fiscal practices which will translate into sustained reductions in the bis central bankers ’ speeches debt to gdp ratio ; enhancing financial system stability and creating an enabling business environment. in the main, the government has made a strong start to the programme, achieving most of the quantitative targets under the imf stand - by agreement. this, which includes the extraordinary success of the voluntary jamaica debt exchange ( jdx ) in february last year, contributed to a trend decline in market interest rates. from the time that a programme was agreed with imf staff in december 2009, bank of jamaica ’ s 30 - day signal rate has been reduced from 12. 50 per cent then to 6. 25 per cent now, a fall of 625 basis points. the rate on market - determined 180 - day treasury bills declined even more sharply by 1, 024 basis points from 16. 80 per cent in december 2009 to 6. 56 per cent at the most recent auction last month. interest rates in the private money market and on deposits and loans also fell. the result is a substantially reduced cost of capital which is needed to encourage increased longterm investment and growth. the decline in interest rates is also linked to the positive trends and outlook for inflation. annual inflation declined to 7. 8 per cent in august from 12. 6 per cent a year earlier and is expected to fall further during this fiscal year to settle within the target band of 6. 0 per cent to 8. 0 per cent. for the medium - term, inflation is targeted to continue its fall towards the average inflation rate of our major trading partners. against

brian wynter : stability, interest rates and economic growth address by mr brian wynter, governor of the bank of jamaica, to the institute of chartered accountants ’ forum, kingston, 5 october 2011. * * * ladies and gentlemen : thank you for inviting me to participate in this forum and to speak on the important issue of “ stability, interest rates and growth ”. the topic is timely in light of jamaica ’ s economic history and the global financial crisis in 2008 and 2009 which is still hurting many economies, including jamaica ’ s. that crisis also resulted in the broadening of the mandate of many central banks to include an increasing role in facilitating sustainable growth and fostering overall financial system stability while focussing on the primary objective of price stability. in this regard, i will speak first to jamaica ’ s experience with growth, inflation and interest rates over the past decade and then discuss the way forward. the jamaican experience the global recession during 2008 and 2009exposed the vulnerabilities in the jamaican economy and contributed to contractions in domestic output of 3. 0 per cent and 1. 2 per cent in 2009 and 2010, respectively. however, while the performance in these two years was primarily the result of the global recession, economic growth before that was relatively modest, averaging 1. 5 per cent per year over the previous eight years. the performance over that period was significantly weaker than that of our caribbean neighbours and other emerging market economies, despite our relatively high rates of investment. in this regard, a number of studies have been undertaken to explain the paradox of high investment and low growth in the jamaican economy. they all concluded that jamaica ’ s weak growth performance has been due largely to low productivity. this low productivity is in turn linked to under - investment in social capital given the high levels of public debt obligations. concurrently, over the period 2001 – 2010, jamaica ’ s annual inflation averaged 12. 0 per cent, well above that of our major trading partners. this partly reflected the country ’ s vulnerability to external and domestic shocks, including the impact of fiscal expansion and debt accumulation. the economy has been particularly vulnerable to periodic episodes of financial market and economic instability, given the persistence of large fiscal and current account deficits, in other words, the twin - deficit problem. unsustainable public debt levels as well as the large fiscal and current account deficits contributed to bouts of exchange rate instability which impacted inflation and interest rates. this instability biased private investment decisions towards short - term,