Summary of
Monetary Policy Discussion and Decisions
September 2024
At its meetings on 26 and 27 September 2024, the Monetary Policy Committee (MPC) noted the following:
- Annual headline inflation at August 2024, as reported by the Statistical Institute of Jamaica (STATIN), was 6.5 per cent, higher than the 5.1 per cent at July 2024. This outturn was in line with the most recent forecast and above the Bank’s target range of 4.0 to 6.0 per cent. Despite the increase in headline inflation, the measure of core inflation that excludes the prices of agricultural food products and fuel was 4.3 per cent at August 2024, continuing the lowering of underlying inflation since the start of 2024.
- The Bank’s projected path for inflation over the next eight quarters is likely to be revised downward. Recent developments suggest that headline inflation will return to the Bank’s target range earlier than initially forecast. This outlook largely reflects the possibility of a lower-than-anticipated impact of Hurricane Beryl on agricultural supplies. Additionally, some key drivers of headline inflation continued to moderate in the context of falling international commodity prices. The lagged effect of the Bank’s monetary policy posture over the past three years should also continue to dampen domestic demand and wage pressures. The net flow of new domestic currency loans to the private sector (expressed in constant prices) for July 2024 also continued to moderate. Inflation expectations in Jamaica have been on a consistent downward path and the exchange rate has been fairly stable. In this regard, inflation is expected to settle within the Bank’s target range over the forecast horizon, with the exception of the next two to three months. There is, however, an upside risk to the inflation projection in the context of the current active hurricane season.
- Against the background of these developments, the MPC, at its meetings on 26 and 27 September 2024, unanimously decided to: (i) reduce the policy rate by 25 basis points (bps) to 6.50 per cent per annum, effective 01 October 2024, and manage domestic liquidity accordingly; and (ii) continue to take measures to preserve relative stability in the foreign exchange market. The decision of the MPC to loosen monetary policy further is based on an improvement in the inflation outlook.
The following considerations also informed the MPC’s decisions:
- The Jamaican economy over the near term is expected to be affected by the adverse impact of Hurricane Beryl and the lagged effects of monetary policy on spending. Notwithstanding, the Bank projects that real economic activity for FY2024/25 is likely to be better than the last forecast, due to a less negative estimate of the impact of Hurricane Beryl. The rebound in economic activity for FY2025/26 is consequently likely to be revised downward.
- Inflation in the United States (US) was 2.5 per cent at August 2024, a deceleration relative to the July 2024 outturn of 2.9 per cent. Inflation in the US is projected to continue to moderate as the economy slows but 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 July 2024 to 4.3 per cent (which has since slowed to 4.2 per cent in August) and a slowdown in employment, US gross domestic product (GDP) increased by 3.1 per cent in the June 2024 quarter. This outturn was above projections, strongly supported by consumption and investment growth.
- The Fed reduced its monetary policy target for interest rates to 4.75 to 5.00 per cent in September 2024. The Fed also indicated 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.
- The outturns for selected external indicators have generally been below the Bank’s projections. Average grains prices (wheat, corn and soybean) declined month over month by 3.7 per cent and 9.9 per cent in July and August 2024, respectively, compared with the Bank’s projection for stable prices for both months. Similarly, the average of liquefied natural gas (LNG) prices for July and August 2024 declined by 13.6 per cent relative to a projected decline of 3.6 per cent. The fall in LNG prices reflected a decline in demand, which was manifested in an increase in natural gas inventories. In addition, the average of daily West Texas Intermediate (WTI) crude oil prices for July and August 2024 declined by 2.1 per cent, lower than the Bank’s forecast. On the other hand, international fertiliser prices, on average, increased marginally over July and August 2024 amid a reduction in supply from China.
- The domestic banking system remains sound with adequate capital and liquidity.
- The domestic fiscal policy stance continues to pose no risk to inflation over the near term.
- The MPC highlighted that the glide path for future interest rate adjustments will be gradual but will continue to depend on the incoming data. The MPC reiterated its commitment to the ongoing review of its monetary policy toolkit to foster improvements in the monetary transmission mechanism.
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Chairman of the MPC
30 September 2024
