Summary of Decisions – May 2025

Summary of
Monetary Policy Discussion and Decisions
May 2025

During its meetings on 16 and 19 May 2025, the Monetary Policy Committee (MPC) deliberated on its monetary policy stance against the background of a stable domestic macroeconomy and outlook, despite the changing policy landscape of Jamaica’s main trading partners. In this regard, the MPC noted the following:

1. Inflation continues to track within the Bank’s target range of 4.0 to 6.0 per cent, having done so since September 2024. Notably, the inflation outlook remains favourable. Annual headline inflation at April 2025, as reported by the Statistical Institute of Jamaica (STATIN), was 5.3 per cent, in line with the outturn for April 2024. Core inflation (which excludes the prices of agricultural food products and fuel from the consumer price index (CPI)) was 4.4 per cent at April 2025, remaining below the upper limit of the target since July 2023. The stable and relatively low headline inflation outturn primarily reflected the non-recurrence of price increases for regulated items (such as bus and taxi fares), which offset higher food inflation. Moreover, the exchange rate, imported inflation, and the private sector’s expectations of future inflation (inflation expectations) have been fairly stable.

2. Over the next two years, headline inflation is projected to remain within the Bank’s target range. Specifically, the Bank’s baseline forecast envisages that headline inflation will trend towards the lower half of the target range. This outlook assumes stable inflation expectations and moderate declines in oil prices.
3. Following the effects of recent shocks, the real economy is forecast to reflect moderate improvements. For fiscal year (FY) 2024/25, the Bank estimates that real gross domestic product (GDP) growth fell in the range of -1.0 to -0.5 per cent. Real GDP is projected to recover in FY2025/26 in the range of 1.0 to 3.0 per cent, largely due to normalisation in the mining, tourism, and construction sectors. In this context, employment levels remain high, even as anecdotal data suggest that wage pressures are moderating. The current account of Jamaica’s balance of payments is projected to remain in surplus over the near term and the international reserves are healthy, and projected to improve further.
4. However, there continues to be some uncertainty about the rapidly evolving policies in the United States (US) and the global economy, and these issues have implications for the domestic economic outlook. Since the beginning of 2025, the US has been resetting trading relationships with its trading partners. The US Government has also announced its intention to tighten immigration policies and improve the efficiency of the federal bureaucracy, while plans are being finalised for a new fiscal package for FY2025/26. These announcements have fuelled uncertainty in the world economy and are likely to slow the pace of economic activity and increase inflationary pressures in the US. In this context, the US Federal Reserve (Fed) in May 2025 maintained its interest rate target in the range of 4.25 to 4.50 per cent and is likely to do so for an extended period.
5. Given the available information, the Bank projects that the first-round impact of the increase in US tariffs on prices in Jamaica will not be significant. There may also be some impact of these policies on Jamaica’s GDP growth and the external accounts.
6. The risks to the inflation forecast are skewed to the upside, which means that inflation could be higher than projected, albeit moderately. Higher inflation could stem from a sharper-than-anticipated increase in the tariff faced by trading partners of the US, resulting in higher imported inflation and inflation expectations. In addition, inflation could be higher than projected if there is a further escalation in geopolitical tensions, which could negatively impact international supply chains. Lower inflation could, however, result from lower-than-projected international commodity prices as well as weaker demand conditions.
7. Following this assessment, the MPC unanimously agreed to (i) reduce the policy rate (the rate offered to deposit-taking institutions (DTIs) on overnight placements with Bank of Jamaica (BOJ)) by 25 basis points from 6.00 per cent to 5.75 per cent per annum, effective 21 May 2025, and (ii) preserve relative stability in the foreign exchange market.

The following considerations also informed the MPC’s decisions:

1. Imported inflation moderated in the March 2025 quarter, relative to the December 2023 quarter. The average price of grains (including wheat, corn and soybeans) for the quarter was lower by approximately 15.1 per cent, compared to the March 2024 quarter. Inflation in the US decelerated to 2.4 per cent at March 2025 from 3.5 per cent a year earlier. Average oil prices for the March 2025 quarter also declined relative to the same quarter of the previous year and are projected to decline further over the next two years. Additionally, shipping prices fell for the review quarter relative to the previous year. Over the near term, average grains and oil prices are forecast to fall by 1.0 per cent and 8.0 per cent per year, respectively.
2. In BOJ’s March 2025 survey of businesses’ inflation expectations, respondents maintained their expectations for inflation 12 months ahead at 7.3 per cent relative to the prior survey. In addition, expectations about exchange rate depreciation have remained relatively stable. The dollarisation ratio for deposits in commercial banks, a measure of the public’s view about exchange rate risk, continues to be stable.
3. The domestic banking system remains sound, with adequate capital and liquidity.
4. The domestic fiscal policy stance continues to pose no risk to inflation over the near term.
5. The MPC reaffirms its commitment to maintaining low and stable inflation and will deploy the tools necessary to preserve stability. The Committee will continue to carefully monitor domestic inflation expectations and any upward pressure on prices caused by the evolving tariff landscape. The MPC is prepared to adjust the stance of monetary policy if the above-noted risks crystallise and result in an upward deviation from the inflation target. Moreover, the MPC remains committed to its work programme to further strengthen the policy transmission process.

_______________________

Richard Byles

Chairman of the MPC
20 May 2025