BOJ Prioritises Stable FX As Jamaican Dollar Set to Weaken In 2025

  • Fitch Solutions anticipates the Jamaican dollar (JMD) will depreciate against the US dollar (USD) through 2025 to JMD160/USD by year-end. The slightly bearish outlook is rooted in a more dovish monetary policy stance expected from the Bank of Jamaica (BOJ) through 2025 in response to a soft domestic economic outlook, muted inflationary pressures, and easing external constraints.
  • BOJ policy decisions are expected to continue to influence the trajectory of the Jamaican dollar. Jamaica’s foreign exchange rate is closely managed by the BOJ to mitigate imported inflation and achieve its price stability mandate.
  • While the Central Bank does not target any specific level of exchange in its ‘crawl-like arrangement’ (reclassified by the IMF from ‘floating’ in 2022), it explicitly uses foreign exchange interventions to ensure price stability.
  • Consistently modest growth numbers suggest that further stimulus may be pursued by the BOJ to support the domestic economy. Encouragingly, the BOJ likely has scope to implement growth-focused monetary policy, as external constraints have waned. Additionally, declining global energy prices and a negative demand shock from slowing U.S. economic activity have mitigated domestic inflation risks, empowering the BOJ to pursue looser monetary policy and a weaker domestic currency with little fear of destabilising domestic price stability.
  • Risks to Fitch’s forecast are skewed slightly to a weaker Jamaican dollar. Should the BOJ feel emboldened, it could allow the JMD to depreciate more than expected to stimulate net exports or reduce the policy rate more quickly. While not the core view, if a stubbornly downbeat external environment strains Jamaica’s foreign reserve levels, a more immediate depreciation could result over a longer time horizon.
  • However, upside risk to the forecast comes from the potential for significant weather shocks creating supply-side inflationary pressures or renewed geopolitical tensions creating supply chain challenges. Should these risks materialise, the BOJ may opt to pursue a tighter-than-expected monetary policy stance, buoying the domestic currency.

(Source: Fitch Connect)