Bank of Jamaica Maintains the Policy Rate at 7%  

• At its meeting on 16 and 17 February 2023, the Monetary Policy Committee (MPC) opted to maintain the policy interest rate at 7.0% and continue to maintain relative stability in the foreign exchange market. Jamaica’s inflation rate of 8.1% in January 2023 was below the rate of 9.4% at December 2022. Core inflation (which excludes food and fuel prices from the CPI) also decelerated to 7.1% at January 2023 from 8.5% at December 2022.
• The key external drivers of headline inflation, such as grains, fuel and shipping prices, continued to decline and the forecasts for these variables have been lowered. Consistent with global consensus forecasts for a fall in commodity prices and the Bank’s overall monetary policy stance, and in the absence of any new shocks, inflation is projected to continue to decelerate in 2023.
• This forecast envisages that annual inflation will fall within the Bank’s inflation target range of 4.0 to 6.0 per cent by the December 2023 quarter and remain generally at that level over the medium term. However, the near-term risks to the inflation outlook are elevated and skewed to the upside.
• While interest rates in the money and capital markets have generally increased in line with the policy rate, some deposit-taking institutions (DTIs) have, so far, made only marginal adjustments to their deposit and lending rates. With that said, the MPC decided to increase by one percentage point (pp) the domestic and the foreign currency Cash Reserve Requirements (CRRs) applicable to deposit-taking institutions (DTIs), effective 01 April 2023. This decision represents a part of the central bank’s efforts aimed at underpinning the return of inflation to its target range. Currently, DTIs are required to hold a minimum of 5.0% of their Jamaican dollar-denominated prescribed liabilities and 13.0% of their foreign currency-denominated prescribed liabilities as cash reserves at the central bank.
• The MPC reiterated that in the absence of new shocks, future monetary policy decisions aimed at returning inflation to the Bank’s target range, including further adjustments to the cash reserve requirement, will depend on the state of liquidity in the financial system and the continued pass-through effect of monetary policy on deposit and loan rates. The decisions will also depend on the MPC seeing more pass-through of international commodity price reductions to domestic prices and on the Fed continuing to slow its policy rate increases. The date of the next policy rate decision announcement is 29 March 2023.

(Source: BOJ)