BANK OF JAMAICA PAUSES POLICY RATE INCREASE
Consistent with its November 2022 announcement, the Monetary Policy Committee (MPC) has unanimously decided to maintain the policy interest rate (the rate offered to deposit-taking institutions on overnight placements with Bank of Jamaica) at 7.00 per cent, effective 21 December 2022. The MPC also decided to continue containing Jamaican dollar liquidity expansion and maintaining relative stability in the foreign exchange market.
The MPC’s decision was based on the incoming data being generally favourable for the inflation outlook. Jamaica’s inflation rate at November 2022 of 10.3 per cent was within the range of 9.5 to 10.5 per cent expected by the Bank. Core inflation (which excludes food and fuel prices) declined to 8.8 per cent at November 2022 from 9.0 per cent at October 2022. The key external drivers of headline inflation, such as grains, fuel and shipping prices, continued to trend downwards and broadly in line with the Bank’s projections. In addition, as expected, the pace of monetary tightening by the United States Federal Reserve Board (Fed) appeared to be slowing.
The December 2022 meeting of the MPC also noted that, while interest rates in the money and capital markets have generally increased in line with the policy rate, the response of interest rates of deposit taking institutions has been slow. Some deposit-taking institutions have recently adjusted their deposit and lending rates marginally and have announced future rate increases. The Bank anticipates more material increases in deposit and lending rates in early 2023. The level of liquidity in the financial system also remains consistent with the Bank’s objective of facilitating a reduction in inflation.
In the absence of new shocks, the MPC noted that its future monetary policy decisions depend on the continued pass-through effect of its past policy rate changes on deposit and loan rates. The decisions also depend on the MPC seeing more pass-through of international commodity price reductions to domestic prices and on the Fed not exceeding its stated policy rate increases.
The MPC’s decisions were also based on the following assessments:
- Inflation has generally tracked in line with the Bank’s expectations. The inflation rate at November 2022 primarily reflected upward movements in the Food and Non-Alcoholic Beverages, Alcoholic Beverages and the Restaurants and Accommodations Services divisions of the Consumer Price Index. The increase in Food was largely attributable to higher prices for vegetables, tubers, plantains, cooking bananas and pulses following adverse weather conditions in the September 2022 quarter. The indicators suggest that inflation over the next 3 to 6 months will be broadly consistent with the Bank’s most recent inflation forecast. The forecast assumes that the public’s expectation for future inflation will continue to fall as the prices of imported commodities fall and domestic monetary policy actions take effect.
- The Jamaican economy continues to perform creditably, and the likelihood that GDP for the fiscal year 2022/23 will grow by 3.0 to 4.5 per cent remains high. GDP grew by an estimated 3.5 to 4.5 per cent for the September 2022 quarter, driven by continued strong growth in Tourism and its allied services, and Manufacturing, Installation and Agriculture. For the December 2022 quarter, a 2.5 to 3.5 per cent growth is anticipated. However, against the background of the continued growth in the economy, labour shortages in selected sectors carry the potential for future wage adjustments, which can put upward pressure on inflation.
Bank of Jamaica will continue to pursue initiatives to address structural impediments to the monetary transmission mechanism. In addition, the Bank will continue to closely monitor the global and domestic environments for potential risks that could threaten Jamaica’s inflation target.
A summary of the Monetary Policy Committee’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 20 February 2023.
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