Summary of
Monetary Policy Discussion and Decisions
May 2024

At its meetings on 16 and 17 May 2024, the Monetary Policy Committee (MPC) noted the following:

  1. Jamaica’s headline inflation rate at April 2024 was 5.3 per cent, which was within the Bank’s target of 4.0 to 6.0 per cent and 0.3 percentage point lower than the rate recorded at March 2024. It was also lower than the Bank’s most recent forecast, mainly due to a faster-than-projected deceleration in agricultural food inflation. Core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) was 5.7 per cent at April 2024, marginally lower than the 5.9 per cent at March 2024. The MPC welcomed the reduction in inflation, which represented the second consecutive month in which annual inflation was within the target range.
  1. While some key drivers of headline inflation, such as international grain prices and inflation expectations, continued to decline, international oil prices have increased. Inflation in the economies of Jamaica’s main trading partners has continued to moderate albeit at a slower-than-projected pace. The exchange rate has remained generally stable, given Bank of Jamaica’s (BOJ) monetary policy actions as well as strong tourism and remittance inflows.
  2. The moderation in inflation is expected to be interrupted temporarily as inflation is projected to breach the upper end of the target range towards the end of the June 2024 quarter, mainly reflecting seasonally higher agricultural food inflation, a normalisation in electricity rates following significant declines in the same quarter of 2023, as well as higher transport costs due to an uptick in international oil prices. Inflation thereafter is projected to return to the target range and generally remain there over the next eight quarters except for a few months in 2025. The projected breaches in 2025 largely reflect a normalisation of agricultural prices following sharp declines in March 2024, which are not projected to re-occur.
  3. The current outlook for inflation is lower than the Bank’s previous forecast mainly due to the deferral of the second increase in public passenger vehicles (PPV) fares, which was scheduled for April 2024 but has been postponed by the Government. Processed food prices and the cost of meals away from home were also revised downward due to lower international grain prices. The impact of these downward impulses is partly offset by the incorporation of the announced increase in the national minimum wage and higher energy and transport-related inflation, due to higher international oil prices.
  4. While inflation is moderating, it is still not firmly anchored within the target range and the risks to future inflation are skewed to the upside (meaning that inflation could be higher than projected). Of note, core inflation remains elevated at the upper end of the target range. In addition, there continue to be risks that wage-related pressures and high inflation expectations could cause inflation to rise above the target. Larger-than-projected regulated price adjustments could also influence higher inflation in the future. There are also some upside risks that are external to Jamaica, such as higher-than-projected international oil prices and worse-than-anticipated weather conditions due to the emerging La Niña weather phenomenon that could result in a more active 2024 hurricane season. The factors that could result in lower-than-projected inflation include weaker-than-projected global growth, which could reduce domestic demand and imported inflation.
  1. Against the background of these developments, the MPC unanimously agreed to maintain: (i) the policy interest rate (the rate offered to deposit-taking institutions (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:

  1. Though moderating, the Jamaican economy continues to grow, which supports increases in aggregate demand for goods and services. Real gross domestic product (GDP) for fiscal year (FY) 2023/24 is estimated to have grown within the range of 1.5 to 2.5 per cent and, although moderating, the economy is expected to expand in the June 2024 quarter. The growth in the economy is mirrored in greater levels of employment, supported by anecdotal information about wage adjustments in selected private sector industries. This evidence implies that the domestic labour market remains very tight.
  2. The risks to the domestic GDP forecast over the next eight quarters are assessed to be on the downside, which means that actual GDP growth could be lower than forecast. On the downside, escalations in geopolitical tensions could adversely affect global growth and hence external demand for tourism services.
  1. Inflation in the US was 3.4 per cent at April 2024, a decline relative to the March 2024 outturn of 3.5 per cent. Inflation in the US is projected to fall as the economy slows but remains above the US Federal Reserve’s (Fed) target of 2.0 per cent for the remainder of 2024.
  1. The risks to the outlook for the US economy are skewed to the downside. 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 provide some partial offsetting impulses.
  1. As anticipated, the Fed continued to maintain its monetary policy target for interest rates at 5.25 to 5.50 per cent in May 2024. The Fed also suggested that future monetary policy decisions will continue to be data-dependent.
  1. The outturns for selected external indicators have generally been below the Bank’s projections. Average grains prices (wheat, corn, and soybean) declined by 4.3 per cent and 1.2 per cent in March and April 2024, respectively, reflecting larger declines when compared with the projection for declines of 0.2 per cent for both months. The average of daily West Texas Intermediate (WTI) crude oil prices for March and April 2024 increased by 4.9 per cent, higher than the Bank’s forecast, and liquefied natural gas (LNG) prices increased for the same period relative to the forecasted decline. While the increase in the average WTI prices occurred in the context of concerns about supply, the marginal increase in LNG prices was supported by higher demand within the US. Meanwhile, international fertiliser prices, on average, declined over March and April 2024 due to diminishing demand.
  2. The MPC noted that, despite the Bank’s tight monetary policy, loan growth remained generally strong. The growth in deposits also remained robust.  Local currency deposits grew by 14.5 per cent at February 2024, an acceleration relative to 9.6 per cent at February 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 3.6 per cent over the year to February 2024. There were also increases in loan and deposit rates in February 2024.
  3. The domestic banking system remains sound with adequate capital and liquidity.
  4. The domestic fiscal policy stance continues to pose no risk to inflation over the near term.
  5. The MPC noted that future monetary policy decisions, including to reduce interest rates, will depend on incoming data related to the risks to inflation stated above. In particular, the evolution of wage increases, inflation expectations and core inflation are important factors that will guide the MPC’s decisions on policy rate adjustments and other monetary policy actions in the future. The Bank will maintain heightened surveillance of the risks to inflation.


Chairman of the MPC
20 May 2024

Post Author: Editorial Team