Amidst Rising Inflation, BOJ Maintains Rate at 7.00%, Hints at Possible Increase

• The Bank of Jamaica’s (BOJ) Monetary Policy Committee (MPC), at its meetings on 16 and 19 February 2024, unanimously agreed to maintain the policy interest rate at 7.0%. However, the committee decided to further tighten Jamaican dollar liquidity conditions.
• The MPC’s decision was influenced by Jamaica’s elevated headline inflation of 7.4% in January 2024, which drifted further outside the range when compared to December. The inflationary surge reflects the impact of higher regulated prices, including the first of a two-part increase in public passenger vehicle (PPV) fares effective October 2023, the effect of wage increases throughout the economy, as well as high agricultural food prices. Partly offsetting the impact of these factors was a reduction in Jamaica Urban Transit Company fares.
• Given the shocks to headline inflation, core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) was 5.9% at January 2024, broadly consistent with the average for 2023, but lower than the 9.7% and 7.1% at January 2022 and January 2023, respectively.
• The longer-term inflation outlook continues to be generally positive. Key drivers of headline inflation, such as inflation expectations and the exchange rate, have remained generally stable. Grain prices have also declined and are projected to continue to fall in the context of buoyant supplies. However, as a result of the above-noted price shocks, inflation is forecasted to remain above the Bank’s target range over the March 2024 and June 2025 quarters.
• The risks to the inflation outlook remain elevated. On the upside, higher-than-projected second-round effects from the PPV fare increases, higher wage adjustments, and a 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, resulting in lower levels of price changes.
• Future monetary policy decisions will, therefore, continue to depend on incoming data related to the strength of the potential risks to inflation noted above. Importantly, the MPC emphasised that it is prepared to take the necessary actions, including further interest rate increases, if the upside risks to inflation highlighted above materialise. The date of the next policy rate decision announcement is March 29, 2023.

(Source: BOJ)