Summary of Decisions – March 2024

Summary of
Monetary Policy Discussion and Decisions
March 2024

At its meetings on 26 and 27 March 2024, the Monetary Policy Committee (MPC) noted the following:

1. Jamaica’s headline inflation rate at February 2024 of 6.2 per cent, while moderating relative to the previous three months, remained above the Bank’s target of 4.0 to 6.0 per cent. Core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) was 6.1 per cent at February 2024, lower than the 6.6 per cent at February 2023. The higher-than- targeted headline inflation at February 2024 continued to largely reflect the impact of the first of the two-part increase in public passenger vehicle (PPV) fares that came into effect in October 2023, as well as the effect of wage increases throughout the economy.
2. Against the background that some changes in regulated prices do not reflect current demand conditions and could potentially reduce the effectiveness of monetary policy in managing inflation, the MPC noted the need for a more structured approach to implementing these price changes.
3. The key macroeconomic drivers of inflation have been generally positive. International commodity prices (including those for grains) and shipping costs continued to decline. The exchange rate has remained generally stable, given Bank of Jamaica’s (BOJ) monetary policy actions as well as strong tourism and remittance inflows. Consistent with these developments, deposit-taking institution (DTI) deposit dollarisation (measured by the proportion of DTIs’ United States (US) dollar deposits to their total deposits) continued to trend downward. Inflation in the economies of Jamaica’s main trading partners also continued to decline. International crude oil prices trended up in the March 2024 quarter, but the impact of this on domestic energy prices was offset by a marked reduction in the price of Liquified Natural Gas (LNG). The business sector’s expectation for inflation 12 months ahead also remained broadly stable at 8.3 per cent in January 2024 relative to 8.0 per cent in December 2023.
4. Inflation, however, is projected to remain above the Bank’s target range over the March 2024 to June 2025 quarters, primarily due to the continuing impact of past and impending increases in PPV fares. Without the impact of the two increases in PPV fares, inflation would fall within the target range of 4.0 to 6.0 per cent for most of 2024, consistent with the success of BOJ’s monetary policy in reducing inflation.
5. The risks to the inflation outlook are balanced. On the upside, higher-than-projected second-round effects from the PPV fare increases, higher-than-projected wage adjustments in the context of a tight labour market as well as further deterioration in supply chain conditions could influence higher inflation. The factors that could result in lower-than-projected inflation include weaker-than-projected global growth, which could reduce domestic demand and imported inflation.

6. Against the background of these developments, the MPC unanimously agreed to maintain: (i) the policy interest rate (the rate offered to DTIs on overnight placements with BOJ) at 7.0 per cent; (ii) relative stability in the foreign exchange market; and (iii) tight Jamaican dollar liquidity conditions.

The following considerations also informed the MPC’s decisions:

7. The Jamaican economy continues to expand, which supports increases in aggregate demand for goods and services. Real gross domestic product (GDP) for the December 2023 quarter is estimated to have grown within the range of 1.0 to 3.0 per cent and there are signs that the economy continued to expand in the March 2024 quarter. The buoyancy in the economy is mirrored in the decline in the unemployment rate at October 2023 to a record low of 4.2 per cent which, supported by anecdotal information about wage adjustments in selected private sector industries, indicates that the domestic labour market remains very tight.
8. The risks to the domestic GDP forecast over the next eight quarters are assessed to be on the upside, which means that actual GDP growth is likely to trend above the forecast. On the upside, higher-than-projected growth among Jamaica’s main trading partners will support faster domestic growth through the tourism sector. This will be supported by an increase in planned public capital expenditure for 2024 as well as other fiscal measures that could stimulate economic activity. On the downside, escalations in geopolitical tensions could adversely affect global growth.
9. Inflation in the US was 3.2 per cent at February 2024, a decline relative to the December 2023 outturn of 3.4 per cent. Inflation in the US is projected to fall as the economy slows but remain above the US Federal Reserve’s (Fed) target of 2.0 per cent for the remainder of 2024.
10. The risks to the outlook for the US economy are balanced. Lower growth could emanate from escalating geopolitical tensions, increased supply shortages, and a stronger-than-projected impact of contractionary monetary policy and the tightening of credit conditions on GDP growth. However, higher-than-projected increases in consumption spending could support higher growth.
11. As anticipated, the Fed continued to maintain its monetary policy target for interest rates at 5.25 to 5.50 per cent in March 2024. The Fed also suggested that future monetary policy decisions will continue to be data-dependent.
12. The outturns for selected external indicators have been below the Bank’s projections. Average grains prices (wheat, corn, and soybean) declined by 1.5 per cent and 4.0 per cent in January and February 2024, respectively, reflecting larger declines when compared with the projection for declines of 0.2 per cent for both months. While the average of daily West Texas Intermediate (WTI) crude oil prices for January and February 2024 increased by 3.1 per cent, higher than the Bank’s forecast, there was a larger-than-expected decline of 13.6 per cent in average LNG prices for the same period. The increase in average WTI prices occurred in the context of positive US economic data, and supply constraints. The reduction in LNG prices was supported by an appreciation of the US dollar and a build-up in the US’s LNG inventories amid mild winter conditions. International fertiliser prices increased in January and February 2024 due to an increase in the price of inputs.
13. The MPC noted that, despite the Bank’s tight monetary policy, deposit and loan growth remained generally strong. Local currency deposits grew by 16.2 per cent at January 2024, an acceleration relative to 13.2 per cent at April 2023, and was above the projected growth in nominal GDP for the March 2024 quarter. The flow of new loans to the private sector increased in real terms by 11.4 per cent over the year to January 2024. There were also marginal reductions in loan and deposit rates in January 2024.
14. The domestic banking system remains sound with adequate capital and liquidity.
15. The domestic fiscal policy stance continues to pose no risk to inflation over the near term.
16. The MPC noted that future monetary policy decisions will depend on incoming data related to the strength of the potential risks to inflation noted above. The Committee will maintain heightened surveillance of the risks to the inflation outlook, and remains committed to utilising the full set of tools to support the policy decisions and to take the necessary actions, including further interest rate increases, if the upside risks to inflation materialise. 

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Chairman of the MPC
28 March 2024