BOJ Raises Policy Rate for Third Consecutive Month

  • The Bank of Jamaica (BOJ) increased its policy interest rate (the rate offered to deposit-taking institutions on overnight placements with BOJ) by 50 basis points to 2.50% per annum, effective 21 December 2021. 
  • The decision to further reduce the level of monetary policy accommodation was made by a unanimous vote by the Bank’s Monetary Policy Committee (MPC). The move was based on the committee’s assessment that inflation for November 2021 of 7.8%, although lower than the 8.5% recorded in October, breached the upper limit of the Bank’s target range and was likely to continue to successively breach the target range over the next 8 to 10 months. 
  • The risks to the inflation forecast are assessed to be skewed to the upside. Upside risks (which means that inflation could track above the forecast) include further increases in inflation expectations, stronger pass-through of international commodity and shipping prices to domestic prices, higher inflation among Jamaica’s main trading partners and the impact of adverse weather on agricultural food prices. Downside risks include lower energy-related prices and lower domestic demand. 
  • The October 2021 inflation expectations survey published by the BOJ indicated that the point-to-point inflation for December 2021 is expected to be about 7.8%. This represents an upward trend in the results from 7.1% and 6.7% for September and July, respectively. In line with this, market participants had rightfully anticipated another rate hike from the BOJ. Of note, over the last 8 months, inflation expectations have been consistently above or at the upper end of the BOJ’s target range. However, since September, it has been trending higher. 
  • Central Banks in developed nations are beginning to tighten monetary policy, with the Bank of England raising interest rates to 0.25% from 0.1% in response to calls to tackle surging price rises. In the US, a senior Federal Reserve official has noted that it could raise rates as early as March 2022 in the face of alarmingly high prices. As prices continue to surge we could see more central banks around the world, raising interest rates and could market the end  of one of the longest periods of low interest rates.

 (Sources: BOJ & NCBCM Research)