Bank of Jamaica Maintains the Policy Rate at 7%
- At its meetings on the 27th and 28th of March 2023, the Monetary Policy Committee (MPC) opted to maintain the policy interest rate (the rate offered to DTIs on overnight placements) at 7.0% and continue to maintain relative stability in the foreign exchange market.
- Jamaica’s inflation rate of 7.8% in February 2023 was below the 8.1% recorded in January 2023. Core inflation (which excludes food and fuel prices from the Consumer Price Index) also decelerated to 6.6% in February from 7.1% in January 2023. The key external drivers of headline inflation, such as grains, fuel, and shipping prices, continued to decline broadly in line with the Bank’s expectations. The pace of monetary policy tightening by the United States Federal Reserve Board also slowed as expected. Moreover, recent developments in the US banking system suggest that this slowing could continue as interest rates in that economy may be near their peak.
- Consistent with global consensus forecasts for a fall in commodity prices and the Bank’s overall monetary policy stance, and in the absence of new shocks, the Bank forecasts that inflation is on track to continue decelerating in 2023. However, one-off regulated price adjustments may result in a temporary uptick in inflation. The forecast also assumes that the public’s expectation for future inflation will continue to fall as the prices of imported commodities decline and domestic monetary policy actions take effect.
- Notwithstanding the favourable outlook, the MPC assesses that the near-term risks to the inflation outlook remain elevated. Against the background of continued growth in the domestic economy, labour market shortages carry the potential for future wage adjustments that can put upward pressure on inflation. Higher inflation could also occur from a worsening in supply chain conditions and higher commodity prices if there are further geopolitical disruptions. On the downside, weaker-than-expected global growth could negatively affect domestic demand and some projected adjustments to regulated prices may not materialise.
- At its previous meeting, the MPC unanimously 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. Currently, DTIs are required to hold a minimum of 5.0 per cent of their Jamaican dollar-denominated prescribed liabilities and 13.0 per cent of their foreign currency-denominated prescribed liabilities as cash reserves at the central bank. With this adjustment, the domestic currency CRR will be increased to 6.0 per cent and the foreign currency CRR will move to 14.0 per cent.
- The Bank will continue to closely monitor the global and domestic economic environments for potential risks that could threaten Jamaica’s inflation target. At the same time, the Bank of Jamaica continues its review of the monetary transmission mechanism to ensure that monetary policy achieves the desired impact on inflation. The date of the next policy rate decision announcement is 29 May 2023.