Bank of Jamaica Reduces Policy Rate to 5.50%

  • Against the background of the falloff in consumer prices in January, the Bank of Jamaica’s (BOJ) Monetary Policy Committee (MPC) reduced the policy rate at its meetings on February 19 and 20, 2026.
  • The Committee assessed that Hurricane Melissa’s direct impact on inflation was less severe than initially anticipated, as agricultural supplies improved faster than expected and mild exchange-rate appreciation helped to ease price pressures.
  • Against this improved inflation outturn and outlook, the MPC unanimously reduced the policy rate by 25 basis points to 5.50%, effective February 24, 2026, while signalling it would remain proactive in preserving relative stability in the foreign exchange market.
  • The MPC expects inflation to generally track within the target over the next eight quarters, although it anticipates temporary breaches of the upper limit in the June and September 2026 quarters, before inflation is projected to return to the 4.0%–6.0% target range by end-December 2026. This improved profile reflects a moderation in projected second-round price effects and a decline in private-sector inflation expectations toward more normal levels.
  • The easing inflation backdrop was supported by official data showing headline inflation of 3.9% in January 2026, down from 4.5% in December 2025 and below the Bank’s projection, largely due to declining food prices as agricultural conditions normalised and the exchange rate strengthened modestly. Core inflation (excluding agricultural food and fuel) also eased to 3.9% in January 2026 from 4.2% in December 2025, signalling broader disinflation momentum beyond food.
  • While the MPC characterised risks to the inflation outlook as balanced, it flagged downside risks from weaker-than-expected domestic demand recovery and upside risks from adverse weather, higher-than-projected inflation expectations, and stronger domestic spending tied to post-hurricane recovery. The MPC also noted that the temporary suspension of the fiscal rule could enable larger fiscal deficits over the next three years, potentially adding demand-side pressure and contributing to second-round inflation effects if productive capacity becomes constrained.

(Source: BOJ)