BANK OF JAMAICA HOLDS THE POLICY RATE AT 5.75 PER CENT
The Monetary Policy Committee (MPC) of Bank of Jamaica (BOJ), during its meetings on 18 and 19 August 2025, deliberated on the Bank’s monetary policy stance against the background of low domestic inflation amid global uncertainties. The MPC determined that the current stance of monetary policy remains appropriate to support the containment of inflation within the target range over the next two years. The Committee, therefore, unanimously agreed to (i) hold the policy rate (the rate offered to deposit-taking institutions (DTIs) on overnight placements with BOJ) at 5.75 per cent per annum, and (ii) preserve relative stability in the foreign exchange market.
Inflation has generally tracked within the Bank’s target range of 4.0 to 6.0 per cent since March 2024. Annual headline inflation at July 2025, as reported by the Statistical Institute of Jamaica (STATIN), was 3.3 per cent, which was lower than the outturn a year ago and below the lower end of the Bank’s inflation target. Core inflation (which excludes the prices of agricultural food products and fuel from the consumer price index (CPI)) was 4.3 per cent at July 2025, also below the rate at July 2024. The reduction in headline inflation over the year primarily reflected the impact of falling energy prices, particularly for crude oil, the non-repetition of increases in public transportation fares, the effect of a reduction in the General Consumption Tax (GCT) rate on electricity charges, and a faster pace of reduction in agricultural prices due to improved supplies. Moreover, inflation has been anchored by fairly stable inflation expectations (what business persons and consumers expect inflation to be in the future).
Over the next two years, headline inflation is projected to generally trend within the Bank’s target range, supported by moderating imported inflation and stable inflation expectations. However, inflation is projected to remain below the lower end of the inflation target over the next few months before increasing towards the centre of the target range. These projected breaches mainly reflect the temporary impact of improved agricultural supplies, following the shock to the Agriculture sector in 2024, as well as lower electricity costs in the context of the reduction in the GCT on electricity charges.
In the face of changes in the United States (US) economic policies, the domestic economy has remained resilient. Remittance inflows for May 2025 continued to grow, while tourism arrivals improved in the June 2025 quarter. The current account of Jamaica’s balance of payments is in surplus and the international reserves are at a historically high level of US$6.1 billion as at July 2025, and are projected to improve further. Employment levels remain high, even as anecdotal data suggest that wage pressures are moderating.
The Bank projects that for fiscal year (FY) 2025/26, real gross domestic product (GDP) growth will recover in the range of 1.0 to 3.0 per cent. Subsequently, growth is forecast to normalise in the range of 1.0 to 2.0 per cent, largely due to positive performance in the Agriculture, Mining, and Tourism sectors.
This economic outlook, however, continues to be clouded by the uncertainties in the global environment. The US continues to reset its economic relationships with its trading partners and tighten its immigration policies. These developments may slow the pace of economic activity and could stimulate inflationary pressures in the US. Against this background, the US Federal Reserve (Fed) maintained its policy rate in July 2025 at the range of 4.25 to 4.50 per cent. With the expectation of a slowdown in output, the Fed is expected to reduce interest rates towards the end of 2025 and, thereafter, continue to reduce interest rates towards its neutral level.
The risks to the inflation forecast for Jamaica are skewed to the upside, which means that inflation could be moderately higher-than-projected. Higher inflation could stem from a sharper-than-anticipated increase in tariffs faced by the US trading partners, 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.
The MPC reaffirms its commitment to maintaining low and stable inflation and will deploy the tools necessary to preserve price and foreign exchange market stability. The Committee will continue to carefully monitor the incoming data and adjust its policy accordingly. Moreover, the MPC remains committed to its work programme to further strengthen the policy transmission process.
A summary of the MPC’s discussions, which influenced the monetary policy decision, has been published on the Bank’s website at https://boj.org.jm/core-functions/monetary-policy/policy-schedule/summary-of-decisions/. The date of the next policy decision announcement is 29 September 2025.
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