JAMAICA | Bank of Jamaica Reduces Policy Rate to 6.25% as Inflation stablises

KINGSTON,  Jamaica, November 21, 2024 - In a significant move signaling growing economic confidence, the Bank of Jamaica (BOJ) has cut its benchmark interest rate to a three-year low of 6.25 percent, marking a decisive shift in its monetary policy stance amid cooling inflation pressures.

The BOJ's Monetary Policy Committee (MPC), meeting on November 19-20, unanimously agreed to reduce the policy rate by 25 basis points while maintaining stability in the foreign exchange market. This latest adjustment, effective Friday, November 22, comes as inflation shows signs of becoming more firmly anchored within the Bank's target range, following temporary disruptions from Hurricane Beryl.

The October inflation report provides compelling evidence for the BOJ's decision. According to the Statistical Institute of Jamaica (STATIN), headline inflation dropped to 4.9 percent, down from September's 5.7 percent and settling comfortably within the Bank's target range of 4.0 to 6.0 percent. Perhaps more tellingly, core inflation – which excludes volatile agricultural food and fuel prices – held at 4.5 percent, marking the sixteenth consecutive month below the 6.0 percent threshold.

Looking ahead, the economic horizon appears increasingly favorable. International grain prices continue their downward trajectory, while inflation in Jamaica's main trading partners shows signs of cooling. Private sector inflation expectations are gradually moderating, and despite recent exchange rate fluctuations, the foreign exchange market maintains its stability, buttressed by the Bank's strategic deployment of its robust foreign reserves.

However, the economic landscape is not without its storm clouds. The Bank's optimism is tempered by several potential headwinds that could buffet Jamaica's economic stability. Chief among these concerns are possible policy shifts among Jamaica's key trading partners – changes that could ripple through investment channels and remittance flows, potentially destabilizing inflation expectations.

The specter of geopolitical tensions looms equally large, threatening to disrupt international supply chains and trigger inflationary pressures. Closer to home, Jamaica's vulnerability to adverse weather patterns remains a persistent concern, with the potential to drive food prices higher. While wage increases have largely normalized to pre-COVID levels, emerging labor market pressures in select sectors have caught the Bank's attention. Conversely, weaker-than-anticipated demand could push inflation below projected levels.

Mindful of these uncertainties and their potential impact on foreign exchange stability, the MPC has doubled down on its commitment to market stability. The Committee signaled that future rate adjustments would follow a measured, data-dependent approach, emphasizing the need for gradual changes based on incoming economic indicators.

For those seeking deeper insight into the Committee's deliberations, detailed discussions underpinning this monetary policy decision are available on the Bank's website at https://boj.org.jm/core-functions/monetary-policy/policy-schedule/summary-of-decisions/.

The next policy decision is scheduled for December 20, 2024.