JAMAICA | BOJ Holds Steady: Governor Byles' MPC Explains Why 1.2% Inflation Doesn't Mean Rate Cuts

Central Bank maintains 5.75% policy rate despite inflation falling well below target range

KINGSTON, Jamaica October 1, 2025 - – Despite headline inflation plummeting to just 1.2 per cent in August—well below the Bank of Jamaica's 4-6 per cent target range—the Monetary Policy Committee says the central bank's decision to hold the policy rate steady at 5.75 per cent is the right move for Jamaica's economic stability.

In its summary of deliberations from the September meetings, chaired by Governor Richard Byles, the Committee emphasized that the dramatic drop in inflation tells a story of temporary supply improvements rather than economic weakness—and that's a crucial distinction.

"The low headline inflation rate at August 2025 is unrelated to demand conditions," the MPC stated. "The temporary factors that caused low headline inflation were primarily related to improvements in supply conditions.

Hurricane Beryl devastated agricultural production last year, sending food prices soaring. Now that crops have recovered and supplies have normalized, those prices are naturally coming back down."

The Committee pointed to core inflation—which strips out volatile food and fuel prices—as the more reliable indicator of the economy's true health. At 4.2 per cent, core inflation remains comfortably within the target range and has done so since March 2025.

"Core inflation continues to track within the target range," the MPC noted. "When we look at the fundamentals—a tight labor market, elevated wage growth, and economic growth between 3 and 4 per cent this quarter—we see an economy that continues to expand."

The MPC's decision also factored in two other one-off events that temporarily suppressed headline inflation: the dissipation of earlier transport fare adjustments and the Government's March 2025 decision to reduce the General Consumption Tax on electricity consumption.

"Notwithstanding these temporary shocks, the underlying inflation dynamics remain healthy," the Committee emphasized. "Recent developments suggest that headline inflation will continue to track below the lower limit of the Bank's target range for the remainder of 2025 but should return to the target range by the March 2026 quarter."

But the MPC was quick to acknowledge that the inflation outlook isn't without risks—and those risks are tilted toward higher, not lower, inflation ahead.

"The risks to the projected path for inflation over the next eight quarters are skewed to the upside," the Committee warned. "Higher inflation could stem from a sharper-than-anticipated increase in tariffs faced by the United States' trading partners as well as related second-round effects.

In addition, inflation could be higher than projected if there is further escalation in geopolitical tensions, which could negatively impact international supply chains."

The MPC highlighted that Jamaica's macroeconomic environment remains stable, with healthy international reserves and a current account surplus projected for the near term.

Importantly, as interest rates abroad continue to decline, Jamaica's relatively stable domestic rates have improved the interest rate differential—a positive development for foreign exchange stability.

"The domestic banking system remains sound, with adequate capital and liquidity," the Committee stated. "Further, with stable domestic interest rates, the decline in interest rates abroad has improved the differential between domestic and external rates, which should better support stability in the foreign exchange market."

The MPC's unanimous decision also reflects heightened vigilance going forward. "The Committee will continue to monitor the incoming data and adjust its policy accordingly," the statement read. "This includes maintaining heightened surveillance of the trajectory of core inflation relative to the lower bound of the inflation target range."

Looking ahead, the Committee reaffirmed the central bank's commitment to its mandate. "The MPC reaffirms its commitment to maintaining low and stable inflation. Moreover, the MPC remains committed to its work programme to further strengthen the policy transmission process."

With economic growth projected between 1 and 3 per cent for FY2025/26, driven by expansions in agriculture, mining, and tourism, the Committee expressed measured confidence about Jamaica's economic trajectory—even if that means holding rates steady while inflation temporarily undershoots the target.

In monetary policy, the MPC's decision suggests, sometimes the right move is strategic patience backed by careful data analysis.

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