BOJ Holds Policy Rate Amidst Impact of Hurricane Melissa

• During its meetings on November 20^th and 21^st, the Bank of Jamaica’s (BOJ’s) Monetary Policy Committee (MPC) deliberated on its monetary policy stance in the context of the post-hurricane environment and expressed its concern regarding the devastation caused by Hurricane Melissa and the considerable hardship and dislocation being suffered by many Jamaicans.
• The MPC determined that preserving a stable macroeconomic environment will be essential to the recovery effort at the individual, household and national levels. In this regard, the BOJ noted that it remains committed to ensuring that the inflationary effects of the hurricane are managed to limit the hardships on vulnerable groups and to facilitate the conditions necessary for long-term economic recovery.
• With this in mind, the Committee decided unanimously to hold the policy rate at 5.75% per annum and take special pre-emptive measures to preserve relative stability in the foreign exchange (FX) market, which will enable inflation to return to the target range by 2027.
• The decision to hold the policy rate reflects expectations that headline inflation will rise sharply above the 4%–6% target in the near term and that core inflation will also exceed the range by mid-2026. Additionally, the government's plans to temporarily suspend fiscal rules will increase spending and add to demand pressures. Inflation risks are, however, tilted upward due to the possibility of stronger-than-expected reconstruction demand, higher inflation expectations and potential supply constraints, though a slower-than-anticipated recovery in domestic demand could ease pressures.
• Meanwhile, the special pre-emptive measures in the FX market contemplate the need for increased imports to support the rehabilitation and reconstruction efforts. The MPC noted that the Bank’s strong international reserves reinforce its ability to support the foreign exchange market. In this regard, the Bank has sold US$210Mn to the market since the passage of Hurricane Melissa on October 28^th. In the near term, the Bank will supply foreign currency directly to certain energy-sector entities and will take proactive steps to maintain sufficient foreign currency liquidity in the broader market, including bringing back advance notices for intervention sales.
• The next policy decision announcement is scheduled for December 18, 2025. BMI expects the BOJ to maintain its policy rate at 5.75% in 2025 and at 5.50% in 2026 in response to increased domestic price pressures. That said, Jamaica’s monetary authorities have successfully stabilised domestic inflation expectations by implementing a credible inflation targeting monetary policy regime in 2020, a tailwind for post-storm price stability. As such, BMI analysts hold a more optimistic outlook than the BOJ, with analysts anticipating that core inflation is less likely to increase. This supports their belief that underlying inflationary pressures will remain subdued and will return to the BOJ's target range by the first quarter of 2026.

(Sources: BOJ and BMI, a Fitch Solutions Company)