BANK OF JAMAICA MAINTAINS POLICY STANCE
Bank of Jamaica’s Monetary Policy Committee (MPC), at its meetings on 16 and 17 May 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.
In taking the decision, the MPC noted that the 12-month point-to-point inflation rate (April 2023 to April 2024), released by the Statistical Institute of Jamaica (STATIN) on 15 May 2024, was 5.3 per cent. Inflation as at April was within the Bank’s target range and 0.3 percentage point lower than the rate recorded at March 2024. It was also lower than the Bank’s most recent forecast, mainly due to a faster-than-projected deceleration in agricultural food inflation. Further, core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) was 5.7 per cent at April 2024, marginally lower than the previous month. The MPC welcomed the reduction in inflation, which represented the second consecutive month in which annual inflation was within the target range.
The MPC’s decision to maintain its monetary policy stance, however, reflects the fact that while inflation is moderating, it is still not firmly anchored within the target range and the risks to future inflation are skewed to the upside (meaning that inflation could be higher than projected). Of note, core inflation remains elevated at the upper end of the target range. In addition, there continue to be risks that wage-related pressures and high inflation expectations could cause inflation to rise above the target. Larger-than-projected regulated price adjustments could also influence higher inflation in the future. There are also some upside risks that are external to Jamaica, such as higher-than-projected international oil prices and worse-than-anticipated weather conditions due to the emerging La Niña weather phenomenon that could result in a more active 2024 hurricane season. The factors that could result in lower-than-projected inflation include weaker-than-projected global growth, which could reduce domestic demand and imported inflation.
The moderation in inflation is expected to be interrupted temporarily as inflation is projected to breach the upper end of the target range towards the end of the June 2024 quarter, mainly reflecting seasonally higher agricultural food inflation, a normalisation in electricity rates following significant declines in the same quarter of 2023 as well as higher transport costs due to an uptick in international oil prices. Inflation thereafter is projected to return to the target range and generally remain there over the next eight quarters except for a few months in 2025.
The current outlook for inflation is lower than the Bank’s previous forecast, mainly due to the deferral of the second increase in public passenger vehicles (PPV) fares, which was scheduled for April 2024 but has been postponed by the Government. Processed food prices and the cost of meals away from home were also revised downward due to lower international grain prices. The impact of these downward impulses is partly offset by the incorporation of the announced increase in the national minimum wage and higher energy and transport-related inflation due to higher international oil prices.
The MPC noted that future monetary policy decisions, including to reduce interest rates, will depend on incoming data related to the risks to inflation stated above. In particular, the evolution of wage increases, inflation expectations and core inflation are important factors that will guide the MPC’s decisions on policy rate adjustments and other monetary policy actions in the future. The Bank will maintain heightened surveillance of the risks to inflation.
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 28 June 2024.
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