JAMAICA | BOJ cuts interest rate by 25 basis points to 6.75 per cent

Governor Richard Byles of the Bank of Jamaica announced at a quarterly press briefing in Montego Bay that the Bank's Monetary Policy Committee has decided to continue its gradual easing of monetary policy. Effective August 21, 2024, the Bank has reduced its policy rate by 25 basis points to 6.75 percent.

He told the media briefing, that this decision reflects the Committee's view that headline inflation is becoming more anchored within the Bank's target range of 4.0 to 6.0 percent.

The Bank will also continue to gradually reduce its absorption of liquidity from Deposit-Taking Institutions through open market operations and maintain stability in the foreign exchange market. This follows a previous decision in June 2024 that has already resulted in an injection of approximately $21 billion into the system and a 105-basis point reduction in interest rates on the Bank's 30-day Certificates of Deposit.

Governor Byles noted that while there will be a temporary uptick in headline inflation over the next three to five months due to the impact of Hurricane Beryl, economic conditions are generally supportive of low, stable, and predictable inflation in the future. The Bank remains committed to its primary mandate of maintaining inflation firmly between 4.0 and 6.0 percent.

The Governor went on to outline the Bank's take on the cconomy:

1. Current Inflation Status:
   • Annual headline inflation at July 2024 was 5.1%, within the Bank's target range of 4.0-6.0%.
   • This marks the fifth consecutive month inflation has been within the target range.
   • Core inflation (excluding agricultural food and fuel prices) was 4.5% in July 2024.
2. Economic Conditions:
   • Real GDP growth is moderating:
     • March 2024 quarter grew by 1.4%, lower than the December 2023 quarter.
     • Signs of further slowdown in the June 2024 quarter.
     • GDP for September 2024 quarter is projected to contract compared to September 2023.
   • Domestic demand is moderating, reflected in selected sectors and easing wage pressures.
   • Net flow of new domestic currency loans to the private sector has decreased.
3. Inflation Expectations:
   • Businesses' inflation expectations for 12 months ahead decreased to 7.6% from 8.2%.
   • Exchange rate depreciation expectations have fallen significantly.
   • Dollarization of deposits in commercial banks has decreased to slightly less than 40%.
4. Foreign Exchange Market:
   • Exchange rate has been relatively stable, depreciating by only 1.4% year-over-year as of August 12, 2024.
   • The Bank has maintained an appropriate presence in the foreign exchange market.
   • Net International Reserves stood at US$5.1 billion as of end-July 2024.
5. Impact of Hurricane Beryl:
   • Passed in July 2024 as a category four storm.
   • Significant infrastructure damage estimated.
   • Preliminary damage to Agriculture and Fisheries sector estimated at $5.7 billion (0.2% of GDP).
   • Tourism sector impacted by temporary airport closures.
6. Economic Outlook:
   • FY2024/25: Real economic activity projected between -1.5% to 0.5%.
   • FY2025/26: Real GDP projected to grow by 1.5% to 3.5%.
   • Temporary rise in inflation expected between August and December 2024 due to Hurricane Beryl.
   • Inflation projected to return to the target range shortly after December 2024 quarter.
7. Risks to Inflation Outlook:
   • Balanced risks: Rising international shipping costs, worse-than-anticipated impact of Hurricane Beryl, and adverse weather conditions could lead to higher inflation.
   • Factors that could result in lower inflation include weaker-than-projected global growth.
8. Future Monetary Policy:
   • The Bank will continue to act to ensure orderly movements in the exchange rate.
   • Future decisions to reduce interest rates will depend on incoming data.

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