BOJ Reduces Monetary Accommodation & Raises Policy Rate by 100bps

• Bank of Jamaica (BOJ) announced its decision to increase its policy interest rate; the rate offered to deposit-taking institutions on overnight placements with BOJ, by 100 basis points to 1.5% per annum, effective 01 October 2021. 
• Accompanying this rate increase, the Bank decided to continue implementing measures to contain Jamaican dollar liquidity expansion. While not targeting any specific level of the exchange rate, Bank of Jamaica will continue to ensure that further movements in the exchange rate do not threaten the inflation target. 
• These decisions to reduce the level of monetary policy accommodation were made by a unanimous vote by the Bank’s Monetary Policy Committee (MPC), and were based on the MPC’s assessment that, following the breach in August 2021, the risks of continued breaches of the inflation target, have intensified. 
• At its last meeting in August, the MPC had projected that inflation over the next two years would average 5.5% to 6.5% and would breach the upper limit of the Bank’s target over the first year, starting in the September 2021 quarter. The recent significant increases in international commodity prices and shipping costs have had a higher than expected pass through to local prices and have contributed to further increases in inflation expectations. Additionally, consumers will also be faced with higher prices for agricultural commodities as a result of the passage of tropical storms Grace and Ida in August 2021, which may also contribute to a worsening of inflation expectations. 
• Consistent with meeting its inflation target sustainably in the medium term, the Bank also signaled its intent, subject to inflation and other macroeconomic data evolving as projected, to continue to reduce the level of monetary accommodation at subsequent policy meetings by increasing the Bank’s policy rate.

(Source: Bank of Jamaica)