BANK OF JAMAICA HOLDS POLICY RATE AMIDST HIGHER HURRICANE-RELATED INFLATION RISK
During its meetings on 16 and 17 December 2025, Bank of Jamaica’s (BOJ’s) Monetary Policy Committee (MPC) expressed concern that the impact of Hurricane Melissa on the economy was more pronounced than initially anticipated, creating a greater risk that the inflation impact could be larger.
More recent estimates indicate that damage to roads, buildings, the electricity grid and other infrastructure is in excess of 40 per cent of gross domestic product (GDP), above the previous estimate of 30 per cent. The Agriculture sector experienced damage amounting to approximately 50 per cent of the sector’s 2024 GDP. The larger damage means that the initial impact on agriculture and electricity prices, as well as the later effect on the prices of other goods and services (the second-round impact) of this initial price jump, is likely to be stronger and more persistent than initially anticipated. As a result, the upside risk of the disaster on the inflation outlook is greater, meaning that inflation could be higher than forecast.
Against this background, the Committee decided unanimously to (i) continue holding the policy rate (the rate offered to deposit-taking institutions (DTIs) on their current account balances at BOJ) at 5.75 per cent per annum, and (ii) remain proactive in preserving relative stability in the foreign exchange market.
The decision to continue holding the policy rate at this time is based on the following factors:
- Annual headline inflation will rise sharply over the next few months from 4.4 per cent at November 2025 and remain elevated for the near term. In this context, inflation will exceed the Bank’s inflation target of 4.0 to 6.0 per cent by early 2026. This rise primarily reflects the hurricane’s impact on the major food-producing parishes and disruptions to supply chains (particularly in energy and agriculture), which monetary policy cannot affect.
- Core inflation (which excludes the prices of agricultural food products and fuel from the consumer price index (CPI)) will also rise over the next twelve months, reflecting another wave of price increases for other goods and services (e.g. those related to home repairs, meals from restaurants and personal care items) through second-round price effects. The Bank is therefore positioning monetary policy to minimise such effects and to constrain inflation expectations (i.e. what businesses and consumers anticipate will happen to retail prices). The higher core inflation will be supported by the anticipated surge in overall spending in the context of the rebuilding efforts, facilitated largely by external financing to the private and public sectors.
- In the aftermath of the hurricane, Parliament has suspended the fiscal rule for an initial period of one year. This will support the public sector’s ability to increase spending for the recovery and relief effort. For the central government, in particular, larger fiscal deficits are projected over the next three fiscal years, compared with their previous projection.
- The risks to the inflation outlook are skewed to the upside, with a greater likelihood of inflation being above projections. Higher inflation could result from higher-than-expected demand amidst the reconstruction efforts and from increased inflation expectations. A more protracted recovery in the agriculture sector and more prolonged disruptions to supply chains could worsen food price increases. There could also be long-term damage in specific industries, which could slow the improvement in the production and availability of supplies. On the downside, inflation could be lower due to a slower-than-anticipated recovery in domestic demand associated with income loss.
The Statistical Institute of Jamaica reported that annual headline inflation at November 2025 was 4.4 per cent, which was above the Bank’s projections and above the 2.9 per cent at October 2025. The higher headline inflation, compared with October, was due mainly to higher food prices, reflecting early signs of the impact of the hurricane on the Agriculture sector. Core inflation was 4.3 per cent at November 2025, which was above the outturn of 3.7 per cent at October 2025.
Economic activity will contract significantly in the immediate aftermath of the hurricane. In this context, the Bank anticipates a decline in real GDP in the range of -4.0 to -6.0 per cent for fiscal year (FY) 2025/26, largely due to the extensive damage to infrastructure and disruption to productive activity. BOJ projects that the financial inflows from multilateral and private sources will support spending in the economy over the next three years, to the extent that the capacity exists to execute planned projects. For FY2026/27, real GDP growth is projected in the range of -1.0 to 1.0 per cent, reflecting the commencement of recovery efforts, which will escalate in ensuing years.
Although the current account of Jamaica’s balance of payments is projected to deteriorate over the near-term, the international reserves will remain robust.
The MPC reaffirms its view that preserving a stable macroeconomic environment is essential to the country’s recovery and reconstruction efforts. BOJ, therefore, remains committed to ensuring that the inflationary effects of the hurricane are managed to limit hardships on vulnerable groups and to facilitate the conditions necessary for long-term economic recovery.
The Committee will continue to closely monitor the incoming data and maintain heightened surveillance of the second-round impact of higher food prices on core inflation. The MPC is prepared to adjust the stance of monetary policy and to take the necessary policy action, if the above-noted risks threaten the projected return of inflation to the target range in the shortest possible time.
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 23 February 2026.
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