JAMAICA | Bank of Jamaica maintains its 7.0% policy interest rate in support of inflation reduction

KINGSTON,  Jamaica, August 18, 2023 - Bank of Jamaica’s Monetary Policy Committee (MPC), says it will be maintaining the policy interest rate at 7.0 per cent; the tight Jamaican dollar liquidity conditions and the relative stability in the foreign exchange market.

The policy interest rate is the rate offered to deposit-taking institutions (DTIs) on overnight placements with the Bank of Jamaica.

The decision to maintain the monetary policy stance  came at the MPC’s meetings on  the 16th and 17th of  August 2023, and is based on the MPC’s view that, aided by the Bank’s management of the exchange rate and liquidity, there has been material success in controlling core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)). 

The BOJ said the decline in core inflation, supported by falling international commodity prices, has also led to a general reduction in headline inflation since April 2022. 

Core inflation at July 2023 of 5.2 per cent was lower than the 8.4 per cent recorded at April 2022. Correspondingly, Jamaica’s annual headline inflation rate at July 2023 of 6.6 per cent was much lower than the peak rate of 11.8 per cent recorded at April 2022.

However, headline inflation at July 2023 is slightly higher than the 6.3 per cent outturn at June 2023 and is reflecting the effects of specific shocks. 

The MPC noted that while the key drivers of headline inflation, such as grains prices, shipping costs and inflation expectations, continued to decline, there was exceptionally high agricultural price inflation in June and July 2023, which reflected the impact of prevailing high temperatures. 

In addition, there have been ongoing upward adjustments in the price of meals consumed away from home, and the first-round effect of the adjustment in the national minimum wage was recorded in the June 2023 CPI. 

At the same time, the Jamaican economy continues to expand, which supports increases in aggregate demand for goods and services.Gross domestic product (GDP) for the June 2023 quarter is estimated to have grown within the range of 1.0 to 3.0 per cent, and there are signs that the economy expanded in the September 2023 quarter. 

The notable decline in the unemployment rate as at April 2023 to 4.5 per cent, supported by anecdotal information about wage adjustments in selected private sector industries, indicates that the domestic labour market is very tight.

The uptick in inflation over the past three months is projected to continue for the remainder of the September 2023 quarter, driven by higher agricultural prices, higher education costs and wage pressures. 

Notwithstanding the uptick, inflation is expected to generally decelerate to the Bank’s target range of 4.0 to 6.0 per cent by the December 2023 quarter and with the exception of a few months in 2024, remain there.

Inflation could, however, rise above this forecasted path. Higher-than-projected future wage adjustments in the context of the tight domestic labour market, second-round effects from the agricultural price inflation, a worsening in supply chain conditions and an elevation of world oil prices could put further upward pressure on inflation. 

Downside risks to this outlook include weaker-than-expected global growth, which could reduce domestic demand, and the non-materialisation of some projected increases to regulated prices.

Future monetary policy decisions will depend on the incoming data related to the indicators of the above-noted potential headwinds to inflation. 

The Bank will continue to closely monitor the global and domestic economic environments for potential risks to Jamaica’s inflation rate and act accordingly.