BANK OF JAMAICA REDUCES POLICY RATE TO 5.50 PER CENT
Bank of Jamaica’s (BOJ’s) Monetary Policy Committee (MPC), during its meetings on 19 and 20 February 2026, assessed that the direct impact of Hurricane Melissa on inflation was less severe than initially anticipated. A faster-than-expected improvement in agricultural supplies, along with recent mild exchange rate appreciation, supported lower inflation. Inflation is now projected to generally trend within target over the next eight quarters, with a few exceptions. In the context of the improved inflation outturn and outlook, the Committee decided unanimously to: (i) reduce the policy rate (the rate offered to deposit-taking institutions (DTIs) on their current account balances at BOJ) by 25 basis points to 5.50 per cent per annum, effective 24 February 2026; and (ii) remain proactive in preserving relative stability in the foreign exchange market.
The inflation forecast takes into account an improved outlook for key domestic macroeconomic indicators. After possible temporary breaches of the upper limit of the inflation target over the June and September 2026 quarters, inflation is now projected to return to the 4.0 to 6.0 per cent target range by the end of the December 2026 quarter. This earlier-than-previously-anticipated return to target reflects a moderation of the Bank’s forecast for later (or second-round) price increases. In addition, private sector expectations of future inflation (inflation expectations), a key driver of headline inflation, are forecast to fall to normal levels over the near term. The current account of Jamaica’s balance of payments is, however, projected to record higher deficits over the near term as the economy rebuilds from the Hurricane Melissa fallout, but the international reserves remain healthy and are projected to improve further. The forecast also considers the direct impact of the recently announced tax package.
The decision to reduce the policy rate followed detailed consideration of a number of factors, including:
- The Statistical Institute of Jamaica reported that annual headline inflation at January 2026 was 3.9 per cent, lower than both the Bank’s projection and the 4.5 per cent rate at December 2025. The lower inflation compared with December 2025 was due mainly to a decline in food prices, reflecting the impact of the improvement in agricultural supplies following the hurricane and an appreciation in the exchange rate. Core inflation (which excludes the prices of agricultural food products and fuel from the consumer price index (CPI)) was 3.9 per cent at January 2026, lower than the outturn of 4.2 per cent at December 2025.
- The risks to the inflation forecast are balanced. On the downside, inflation could be lower due to a slower-than-anticipated recovery in domestic demand. On the upside, higher inflation could result from bad weather as well as higher-than-projected inflation expectations. In addition, upward price pressures may arise from increased overall domestic spending amid the post-hurricane recovery efforts. In particular, the government’s temporary suspension of the fiscal rule will allow for fiscal deficits over the next three years. These deficits, in supporting higher spending in the economy, could place pressure on the country’s productive capacity and contribute to higher second-round price pressures.
The Committee will continue to closely monitor the incoming data. The MPC is prepared to adjust the stance of monetary policy and to take the necessary policy action if the balance of risks shifts and threatens 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 31 March 2026.
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