BANK OF JAMAICA REDUCES THE POLICY RATE TO 6.25 PER CENT AS INFLATION STABILISES WITHIN THE TARGET RANGE
Bank of Jamaica’s (BOJ’s) Monetary Policy Committee (MPC), at its meetings on 19 and 20 November 2024, assessed that the prevailing economic environment is conducive to a further easing of its monetary policy stance and unanimously agreed to: (i) reduce the policy rate by 25 basis points (bps) to 6.25 per cent per annum, effective Friday, 22 November 2024; and (ii) preserve relative stability in the foreign exchange market. The decision of the MPC to ease monetary policy further is based on an improvement in the inflation outlook.
Following the temporary impact of Hurricane Beryl on prices, inflation is becoming more anchored in the Bank’s target range. Annual headline inflation at October 2024, as reported by the Statistical Institute of Jamaica (STATIN), was 4.9 per cent, lower than the 5.7 per cent at September 2024. This outturn was also lower than the most recent forecast and was within the Bank’s target range of 4.0 to 6.0 per cent. Core inflation (which excludes the prices of agricultural food products and fuel from the CPI) was 4.5 per cent at October 2024, representing the sixteenth consecutive month that core inflation was below 6.0 per cent.
Inflation is projected to remain broadly within the Bank’s target range over the next two years. The key drivers of headline inflation, such as international grains prices and inflation in the economies of Jamaica’s main trading partners, continue to decline.In addition, the private sector’s expectations about the level of future inflation are gradually trending down. Despite an uptick in the exchange rate over recent months, the foreign exchange market remains relatively stable, supported by the Bank’s use of its buoyant foreign reserves to augment flows in the market.
However, uncertainty related to potential economic policy changes among Jamaica’s main trading partners could have adverse implications for investment and remittance inflows, as well as inflation expectations. Higher inflation could also result from further escalation in geopolitical tensions, which could negatively impact international supply chains. Worse-than-anticipated weather conditions in Jamaica could also put upward pressure on inflation. While anecdotal information suggests that private sector wage increases have stabilised at their pre-COVID rate, reports of labour market pressures in selected sectors have emerged. On the downside, lower inflation could result from weaker-than-projected demand.
Given the potential implications for the foreign exchange market of the uncertainty noted above, the MPC reaffirmed its commitment to ensuring continued stability in the market. It also noted that, based on available information, future interest rate adjustments will, of necessity, be gradual and will continue to depend on the incoming data.
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 December 2024.
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