Bank of Jamaica Surprises Market by Holding the Policy Rate at 5.75%

The Monetary Policy Committee (MPC) of the Bank of Jamaica (BOJ), at its meetings on the 25^th and 26^th of September 2025, unanimously agreed to hold the policy rate at 5.75% against the background of low domestic inflation amid global uncertainties. Despite broad market expectations for a reduction in the benchmark rate, the MPC determined that the current stance continues to be appropriate to support inflation converging to the target range.
The decision to maintain the policy rate considers that while headline inflation of 1.2% as at August 2025 is below the Bank’s target range of 4.0 to 6.0%, core inflation continues to track within the target range. Moreover, the low headline inflation rate as at August 2025 is unrelated to demand conditions.
The BOJ noted that the temporary factors that caused low headline inflation in August 2025 were primarily related to improvements in supply conditions. In particular, agricultural prices during the month were lower than a year earlier, when prices rose due to the negative impact of Hurricane Beryl on domestic crop production. Supplies improved subsequent to the adverse weather, leading to prices reverting to more normal levels. In addition, the dissipation of the impact of a previous adjustment in public transport fares, as well as a reduction in the General Consumption Tax (GCT) on electricity consumption announced by the Government in March 2025, contributed to lower-than-targeted inflation.
Notwithstanding these temporary shocks, core inflation (which excludes the prices of agricultural food products and fuel from the Consumer Price Index (CPI)) was 4.2 percent in August 2025, remaining within the target range since March 2025. Recent developments suggest that headline inflation will continue to track below the lower limit of the Bank’s target range for the remainder of 2025 but should return to the target range by the March 2026 quarter. This upward trajectory will be driven by the anticipated dissipation of the temporary shocks. Core inflation is projected to remain within the target range over the next two years, consistent with stable inflation expectations and a growing economy.
It was widely expected by economists and market analysts that the BOJ would lower its benchmark rate at this meeting, given that headline inflation has remained on a steady disinflationary path. Instead, the Bank opted to hold, citing concerns about core inflation, a metric that took centre stage in its decision for the first time in recent years. Of note, the BOJ’s formal target is based on headline inflation, not core, and the Bank has never published a target range for core inflation.
While core inflation is often regarded as a more reliable gauge of underlying long-term price trends, effective monetary policy also depends on clarity. The absence of defined guidance on core inflation could leave the public without a clear anchor for expectations.
That said, the BOJ noted that risks to the projected path for inflation over the next eight quarters are skewed to the upside (which means that inflation could be above projections). Higher inflation could stem from a sharper-than-anticipated increase in tariffs faced by the United States (US) trading partners, as well as related second-round effects. This could result in higher imported inflation and inflation expectations. Additionally, inflation could be higher than projected if there is further escalation in geopolitical tensions, which could negatively impact international supply chains. Lower inflation could, however, result from lower-than-projected international commodity prices as well as weaker demand conditions.
The MPC noted that it would continue to monitor incoming data and will adjust its policy as needed when it meets again in November 2025.

(Sources: BOJ and NCBCM Research)