Fitch Solutions Targets a 5.50% Policy Rate For 2022

• Fitch Solutions forecasts that the Bank of Jamaica (BOJ) will raise its benchmark interest rate by an additional 100 basis points (bps) by end-2022, to 5.50%, in response to high inflation. The BOJ has raised the rate by 400bps since October 2021, to 4.50% as of April 2022, in response to mounting inflationary pressures and the beginning of the US Federal Reserve’s (Fed) rate-hiking cycle. 
• After rising to a multi-year high of 11.3% y-o-y in March 2022, Fitch expects that inflation will remain well above the BOJ’s target range of 4.0% to 6.0% in both 2022 and 2023, as the Russian invasion of Ukraine will keep commodity prices elevated into next year. This will in turn prompt the BOJ to make additional hikes in the near term, though it will begin to lower the benchmark rate in 2023 as price growth slows. 
• Fitch expects that Jamaica’s inflation rate will average 11.4% in 2022 and 7.3% in 2023, from 5.8% in 2021, as the Russia-Ukraine war exerts upward pressure on commodity prices.  
• In late 2021, Jamaica was already in the midst of accelerating price growth due to a short-term agricultural shock stemming from tropical storms Grace and Idain August 2021 and high oil prices. Inflation has continued to gain steam in early 2022, rising to 11.3% in March, and will likely climb further in the months ahead as reliance on imports leaves the market exposed to the impacts of higher commodity prices and shipping costs.

(Source: Fitch Solutions)