BANK OF JAMAICA REDUCES MONETARY ACCOMMODATION
Bank of Jamaica (BOJ) announces its decision to increase the policy interest rate (the rate offered to deposit-taking institutions on overnight placements with BOJ by 50 basis points to 2.00 per cent per annum, effective 17 November 2021. Accompanying this rate increase, the Bank decided to maintain other measures to contain Jamaican dollar liquidity expansion. While not targeting any specific level of the exchange rate, Bank of Jamaica will continue to ensure that movements in the exchange rate do not threaten the inflation target. Consistent with meeting its inflation target sustainably in the medium term, the Bank’s Monetary Policy Committee (MPC) agreed to consider further increases in the Bank’s policy rate (and by extension raising real interest rates, which are currently significantly negative) and maintain or intensify the accompanying measures at subsequent policy meetings. This position is subject to inflation expectations, other macroeconomic data and, consequently, the inflation outlook evolving as projected.
In general, monetary policy decisions taken by Bank of Jamaica are aimed at ensuring that the annual increase in the prices of consumer goods and services (i.e. inflation) remains within the Bank’s inflation target of 4.0 per cent to 6.0 per cent.
The decision to further reduce the level of monetary policy accommodation was made unanimously by the MPC. This was based on the MPC’s assessment that this action was necessary to limit the second-round effects of recent shocks and to guide inflation back within the target range over the next two years.
This reduction in the level of monetary accommodation will cause market-based interest rates to rise further, which will make the returns on Jamaican dollar assets more attractive relative to foreign currency assets. It will also make saving in Jamaican dollars more attractive and borrowing in Jamaican dollars more expensive. These effects are intended to temper the demand for foreign currency and hence moderate the pace of depreciation in the exchange rate; and, generally, reduce demand in the economy and with it the ability of businesses to pass on price increases to consumers.
Inflation is projected to average 5.5 per cent to 6.5 per cent over the next two years. Inflation will continue to breach the upper limit of the Bank’s target range over the next 10 to 12 months at higher rates than were envisaged in the previous forecast and is projected to peak in the range 8.0 per cent to 9.0 per cent over this period. The inflation forecast assumes, inter-alia, the continued transmission of higher international commodity and shipping prices to domestic processed food, food-related services and energy price inflation as well as a recovery in domestic demand.
A summary of the discussions influencing today’s monetary policy decision by the MPC has been published on the Bank’s website and will be discussed at Bank of Jamaica’s monetary policy press briefing, scheduled for 19 November 2021.
The date of the next policy decision announcement is 20 December 2021.
– 30 –