BANK OF JAMAICA MAINTAINS THE POLICY RATE AND HEIGHTENS ITS SURVEILLANCE OF INFLATION RISKS
Bank of Jamaica’s Monetary Policy Committee (MPC), at its meetings on 27 and 28 September 2023, unanimously agreed to maintain: (i) the policy interest rate (the rate offered to deposit-taking institutions (DTIs) on overnight placements with Bank of Jamaica) at 7.0 per cent, (ii) tight Jamaican dollar liquidity conditions, and (iii) stability in the foreign exchange market. The Committee is, however, prepared to take the necessary actions, including further tightening of monetary policy, if the emerging risks to inflation materialise.
The decision to maintain the monetary policy stance is aimed at ensuring that Jamaica’s inflation rate continues to trend downward to the Bank’s target range of 4.0 to 6.0 per cent. The annual headline inflation rate at August 2023 of 6.8 per cent was above the outturns at July (6.6 per cent), June (6.3 per cent) and May (6.1 per cent) 2023, but much lower than the peak rate of 11.8 per cent recorded at April 2022. Correspondingly, core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) increased to 5.6 per cent at August 2023 from 5.5 per cent at July 2023, but was lower than the 8.4 per cent recorded at April 2022.
As anticipated by the Bank, the mild uptick in inflation between May and August 2023 was driven by several shocks. Increases in telephone and internet rates, the national minimum wage and higher agricultural price inflation, along with some upward movement in energy-related prices such as water, electricity and transportation costs, contributed to inflation over the period. The other key drivers of inflation, such as grains prices, shipping costs and inflation expectations, however, continued to generally trend downward.
The MPC expects that the higher-than-targeted inflation rate over the past four months will continue in September 2023, supported by higher agricultural prices, education costs, oil prices and wage pressures. While the Bank is still projecting that inflation will decelerate to the target range in the December 2023 quarter and generally remain there except for some months in 2024, it has heightened its surveillance of the risks to this outlook.
The risks to the inflation outlook are skewed to the upside. Higher-than-projected future wage adjustments in the context of continued tightness in the domestic labour market, second-round effects from the sharp increase in agricultural price inflation over the first half of 2023, worsening supply chain conditions and continued increases in world oil prices could put further upward pressure on inflation. Downside risks to this outlook include weaker-than-expected global growth, which could reduce domestic demand, and the non-materialisation of some projected increases in regulated prices.
Future monetary policy decisions will depend on incoming data related to the strength of the potential headwinds to inflation noted above. As such, the Bank will continue to closely monitor the global and domestic economic environments for these potential risks to Jamaica’s inflation rate. If the emerging risks materialise, the MPC is prepared to take the necessary actions to anchor inflation sustainably within the target range in the shortest possible time.
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 21 November 2023.
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