BANK OF JAMAICA MAINTAINS POLICY STANCE
Bank of Jamaica’s Monetary Policy Committee (MPC), at its meetings on 26 and 27 March 2024, unanimously agreed to maintain: (i) the policy interest rate (the rate offered to deposit-taking institutions (DTIs) on overnight placements with Bank of Jamaica (BOJ)) at 7.0 per cent; (ii) relative stability in the foreign exchange market; and (iii) tight Jamaican dollar liquidity conditions.
The MPC’s decision reflected the fact that Jamaica’s headline inflation at February 2024 of 6.2 per cent, while moderating relative to the previous three months, remained above the Bank’s target of 4.0 to 6.0 per cent. Core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) was 6.1 per cent at February 2024, lower than the 6.6 per cent at February 2023. The higher-than-targeted headline inflation at February 2024 continued to largely reflect the impact of the first of the two-part increase in public passenger vehicle (PPV) fares that came into effect in October 2023, as well as the effect of wage increases throughout the economy. Against the background that some changes in regulated prices do not reflect current demand conditions and could potentially reduce the effectiveness of monetary policy in managing inflation, the MPC noted the need for a more structured approach to implementing these price changes.
The key macroeconomic drivers of inflation have been generally positive. International commodity prices (including those for grains) and shipping costs continued to decline. The exchange rate has remained generally stable, given BOJ’s monetary policy actions as well as strong tourism and remittance inflows. Consistent with these developments, deposit dollarisation, which measures the proportion of United States (US) dollar deposits to total deposits, continued to trend downward. Inflation in the economies of Jamaica’s main trading partners also continued to decline. Additionally, the business sector’s inflation expectations remained broadly stable in January 2024 relative to December 2023.
Inflation, however, is projected to remain above the Bank’s target range over the March 2024 to June 2025 quarters, primarily due to the continuing impact of past and impending increases in PPV fares. Without the impact of the two increases in PPV fares, inflation would fall within the target range of 4.0 to 6.0 per cent for most of 2024, consistent with the success of BOJ’s monetary policy in reducing inflation.
The risks to the inflation outlook are balanced. On the upside, higher-than-projected second-round effects from the PPV fare increases, higher-than-projected wage adjustments in the context of a tight labour market as well as further deterioration in supply chain conditions could influence higher inflation. The factors that could result in lower-than-projected inflation include weaker-than-projected global growth, which could reduce domestic demand and lower imported inflation.
Future monetary policy decisions will depend on incoming data related to the strength of the potential risks to inflation noted above. The Committee decided to maintain heightened surveillance of these risks to the inflation outlook. The MPC remains committed to utilising the full set of tools to support the policy decisions and is prepared to take the necessary actions, including further interest rate increases, if the upside risks to inflation highlighted above materialise.
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 May 2024.
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