Monetary Policy Instruments
The main monetary policy instrument used by the Bank is the policy interest rate. In addition to this rate, Bank of Jamaica uses a variety of other monetary policy tools to meet its inflation target.
The Policy Interest Rate
The policy interest rate is the interest rate that the central bank pays on balances in the current accounts of deposit‐taking institutions at Bank of Jamaica. Changes in the Bank’s policy rate signals the Bank’s policy stance towards achieving its inflation objective. When the Central Bank wants to tighten monetary policy, it will increase the interest rate and will lower the policy rate when it wants to loosen monetary policy. These changes are then transmitted to prices through the financial markets and then through spending and investment decisions.
The policy rate represents the floor of the central bank’s interest rate corridor. This corridor defines a band within which short-term money market rates are expected to move. The floor of the corridor is the Bank’s policy rate while the ceiling of the corridor is the interest rate on the Bank’s standing liquidity facility (SLF). The SLF is an overnight facility implemented to assist deposit taking institutions with short term liquidity needs.
BOJ also conducts open market operations and makes occasional adjustments to the reserve requirements ratios while managing the foreign exchange market in the context of the Government’s policy of operating a flexible exchange rate regime. For more information please see Monetary Policy Management in Jamaica pamphlet.