Bank Of Jamaica Maintains Policy Rate To Support Inflation Reduction

  • The Monetary Policy Committee (MPC), at its meetings on 27 and 28 June 2023, unanimously agreed to maintain the policy interest rate (the rate offered to deposit-taking institutions (DTIs) on overnight placements with Bank of Jamaica) at 7.0 per cent.
  • The decisions were based on the MPC’s view that recent developments, including significantly reduced inflation over the past several months, were generally positive but the risks to the inflation outlook remained.
  • Jamaica’s annual headline inflation rate at May 2023 of 6.1 per cent was just above the Bank’s target range but significantly lower than the 10.9 per cent at May 2022. Core inflation (which excludes food and fuel prices from the Consumer Price Index) at May 2023 of 4.2 per cent was also well below the outturn of 9.7 per cent at May 2022. The MPC’s decisions were therefore intended to ensure that Jamaica’s inflation rate continues to trend toward the target range of 4.0 to 6.0 per cent.
  • Notably, the MPC’s decisions were based on a few key factors. The key external drivers of headline inflation such as grains, fuel and shipping prices, continued to decline and inflation expectations trended downward, such that the United States (US) Federal Reserve Board (Fed) paused its monetary tightening in June 2023 but suggested that interest rates could increase further.
  • The MPC noted that the incoming data was generally positive but pointed out that the uptick in inflation above the target range is likely to continue for June and during the September 2023 quarter. This uptick is expected to be driven by recent increases in telephone and internet rates, the national minimum wage, seasonally higher agricultural prices as well as pending increases in other regulated prices such as transport.
  • Consistent with global consensus forecasts for a further fall in certain commodity prices as well as the Bank’s overall monetary policy stance, and in the absence of new shocks, inflation is expected to decelerate to the Bank’s inflation target range of 4.0 to 6.0 per cent by the December 2023 quarter.
  • In reviewing the impact of its previous monetary policy decisions, the MPC continues to see, in addition to a general lowering of inflation, a relatively strong, lagged pass-through of its policy rate to interest rates in the domestic money and capital markets and in the term rates offered on deposits by DTIs. The date of the next policy decision announcement is 18 August 2023.

(Source: BOJ)