Setting the Inflation Target

  • In a significant step in Jamaica’s economic reform programme, the Minister of Finance and the Public Service approved a continuous medium-term inflation target for Bank of Jamaica in September 2017. This replaced the customary annual fiscal year inflation target. This target will be subject to annual reviews by the Minister, at which time it may be adjusted if economic conditions warrant. The target is continuous over the medium term instead of only for the fiscal year because this allows the Bank to be evaluated on Jamaica’s inflation rate at any time, not just at the end of a fiscal or calendar year.

  • The target of 4.0 per cent to 6.0 per cent was selected on the basis of Jamaica’s current and prospective economic circumstances. Jamaica has already reduced inflation to relatively low levels while, in the context of recent fiscal and structural reforms, the economy is poised to enter a phase of higher GDP growth.

  • The Bank uses monetary policy tools to meet this target.[1] Regular decisions on monetary policy are supported, inter alia, by a reduced form forward-looking open economy model operated by the Bank.[2]

  • The inflation performance and outlook, relative to the target, is assessed on a frequent basis to inform the Bank’s monetary policy stance.

[1] This framework is described as Inflation Targeting Lite. This framework is viewed as a transitional regime that countries utilize prior to obtaining the legal mandate to operate a Full Fledged Inflation Targeting regime.

[2] The Bank’s semi-structural quarterly projection gap model QPM has a solid theoretical foundation and it has also been calibrated to reflect the main stylized facts of Jamaica’s economy. Calibration is expected to further improve going forward as the model is developed/expanded.

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