Fitch Expects BOJ to Continue Holding Amid Inflation Risk From US-Iran Conflict

• Following two consecutive rate pauses in March and May 2026, and as inflation risks emanate from the ongoing U.S. Iran Conflict, research firm Fitch BMI expects the Bank of Jamaica (BOJ) to continue holding its policy rates at 5.50%.
• The US-Iran conflict was a key consideration in the BOJ’s May 2026 rate pause at 5.5%, as it expects the conflict to push headline inflation above the upper bound of its target range through Q3 2026 before moderating as global tensions ease later this year. This would align with BMI’s expectations. The BOJ also noted a rise in inflation expectations to 7.1% (up from 6.5% in April), heightened depreciation risks for the Jamaican dollar, El Niño’s impact on local agriculture and elevated demand stemming from ongoing Hurricane Melissa recovery efforts.
• BMI anticipates that Jamaica’s inflation will rise faster than in previous months. Post-Melissa inflation was well below the agency’s forecast, peaking at 4.5% in December. However, headline inflation began to creep up in March and April (4.3% in both), alongside rising core inflation. The research firm anticipates that prices will continue to rise in the near term, with inflation projected to end the year at 6.5%. This view is underscored by the recent decision to remove the cap on PetroJam’s fuel price increases, which will see domestic energy and transport costs rise in the coming months. Rising inflation expectations suggest an increased risk of price pressures spreading into the broader economy.
• Consequently, BMI expects the BOJ will maintain its current policy stance to contain inflation and anchor inflation expectations, with the policy rate expected to remain at 5.50% through year-end. This view is conditioned on Fitch BMI’s Middle East and North Africa (MENA) team’s current expectation that the conflict will be resolved by mid-June.
• BMI also believes that while surging oil import costs place headwinds on the Jamaican currency, the BOJ's position to maintain its monetary policy stance and decision to "continue special measures to preserve stability in the foreign exchange market" would help offset more severe depreciation. Consequently, it anticipates the Jamaican dollar should finish 2026 at JMD162/USD. This will be supported by the Central Bank's robust reserve levels, which have grown by 2.6% since the start of the year to US$6.45Bn.
• Still, should tensions and global energy prices remain elevated for longer than expected, inflation could rise more sharply as inflation expectations climb further. This, in turn, would create risk of a more hawkish stance by the BOJ, with the potential for the policy rate to rise to help maintain hard-won macroeconomic stability.

(Source: BMI, A Fitch Solutions Company)