Summary of Decisions – December 2024

Summary of
Monetary Policy Discussion and Decisions
December 2024

At its meetings on 18 and 19 December 2024, the Monetary Policy Committee (MPC) noted the following:

1. Inflation is becoming anchored in the Bank’s target range. Annual headline inflation at November 2024, as reported by the Statistical Institute of Jamaica (STATIN), was 4.3 per cent, representing a trend reduction from 7.4 per cent at January 2024. Core inflation (which excludes the prices of agricultural food products and fuel from the consumer price index (CPI)) was 4.2 per cent at November 2024, representing the seventeenth consecutive month that core inflation fell below 6.0 per cent.

2. The deceleration in headline inflation over the year to November 2024 primarily reflected stability in some of its key drivers. The foreign exchange market and the private sector’s expectations about the level of future inflation remained relatively stable over the year. Anecdotal information suggests that wage pressures moderated in October 2024. This moderation was generally in line with projections. The non-recurrence of increases in selected administered prices also supported lower inflation. Further, despite the impact of recent adverse weather on agricultural supplies, which moved agricultural food prices upward, agricultural food price inflation was less than anticipated.
3. Over the next eight quarters, inflation is likely to remain within the Bank’s target range.  There, however, remains an upside risk to the inflation projection in the context of the uncertainty associated with the potential changes to economic policies among Jamaica’s main trading partners. However, the timing and the extent of the policy changes are still highly uncertain.
4. Against the background of these developments, the MPC, at its meetings on 18 and 19 December 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 6.00 per cent per annum, effective Monday, 23 December 2024; and (ii) preserve relative stability in the foreign exchange market. The lowering of the policy rate represents the fourth consecutive reduction for 2024.
5. This decision to ease monetary policy further is based on inflation becoming anchored in the target range. Despite the impact of recent adverse weather on prices, inflation is expected to remain in the target range.
6. Further to the decision to reduce the policy rate to 6.00 per cent per annum, the decision was also taken to narrow the interest rate corridor to 200 bps from 300 bps. In that regard, effective 23 December 2024, the rate on the Bank’s Standing Liquidity Facility (SLF) will decrease to 8.00 per cent per annum.

The following considerations also informed the MPC’s decisions:

7. The Bank projects that real economic activity for fiscal year (FY) 2024/25 and FY2025/26 is likely to be in line with the last forecast. Economic growth in FY2024/25 is expected to be affected by the adverse impact of Hurricane Beryl and the lagged effects of monetary policy on spending. Subsequently, growth is projected to normalise evidenced by a rebound in economic activity in FY2025/26.
8. Annual personal consumption expenditures (PCE) inflation in the United States (US) was 2.3 per cent at October 2024, an uptick relative to the September 2024 outturn of 2.1 per cent. In November 2024, headline inflation in the US increased marginally to 2.7 per cent from 2.6 per cent in October 2024. Inflation in the US is projected to remain above the US Federal Reserve’s (Fed) target of 2.0 per cent for the remainder of 2024. Despite an uptick in the unemployment rate in November 2024 to 4.2 per cent, US employment increased in the month relative to October 2024. For the September 2024 quarter, US gross domestic product increased by 3.1 per cent, marginally above projection, due mainly to greater government spending.
9. The Fed reduced its monetary policy target for interest rates by 25 bps to 4.25 per cent to 4.50 per cent in December 2024. The Fed maintained the rhetoric that the risks to achieving its employment and inflation goals are roughly in balance and that future monetary policy decisions will continue to carefully assess incoming data, the evolving outlook and the balance of risks.
10. The outturns for selected external indicators were mixed. Oil prices trended below the Bank’s projections, while grains and US Liquefied Natural Gas (LNG) prices trended above projections. The average of daily West Texas Intermediate (WTI) crude oil prices for October and November 2024 declined by 0.01 per cent, lower than the Bank’s forecast for an increase of 2.9 per cent. Average grains prices (wheat, corn and soybean) increased month over month by 7.9 per cent in October 2024, and declined by 0.8 per cent in November 2024, compared with the Bank’s projection for a marginal decline in prices for both months. For LNG, the average prices for October and November 2024 increased by 11.8 per cent relative to a projected increase of 6.8 per cent. The increase in LNG prices reflected greater than expected demand. International fertiliser prices, on average, increased marginally over October and November 2024, amid an increase in input prices.
11. The domestic banking system remains sound with adequate capital and liquidity.
12. The domestic fiscal policy stance continues to pose no risk to inflation over the near term.
13. The MPC judged that the current policy stance is appropriate. The scope for further policy easing will depend on the trajectory of inflation relative to the lower bound of the inflation target range. However, the MPC noted that interest rates on bank loans, along with other credit terms, remain high and restrictive, indicating that banks may have room to make downward adjustments in those rates.
14. Despite the positive trends in inflation, the Bank recognises that consumer prices in Jamaica are still high. In this context, the Bank remains committed to its primary mandate of maintaining low, stable and predictable inflation.

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Chairman of the MPC
20 December 2024