Bank of Jamaica Announces Another 50 Basis Points Hike

• On June 29, 2022, the Bank of Jamaica (BOJ) announced its decision to increase the policy interest rate (the rate offered to deposit-taking institutions on overnight placements with BOJ) by 50 basis points to 5.50% per annum, effective 30 June 2022. This reflects a cumulative increase in the policy rate of 500 bps since October 2021. 
• Although the point-to-point inflation outturn fell in May (10.9%) relative to April (11.8%), core inflation remained elevated and headline inflation is likely to continue to breach the Bank’s target range of 4%-6.0% over the next year owing to global developments and heightened uncertainty. The decision also factored in the US Federal Reserve’s signal of a faster pace of increase in interest rates in the US. 
• The Bank’s current decision will cause liquidity conditions to remain tight and interest rates on bank deposits and loans to rise further, making savings in Jamaican dollars more attractive relative to foreign currency assets and borrowing in Jamaican dollars more expensive. 
• The Bank also decided to continue pursuing other measures to contain Jamaican dollar liquidity expansion and maintain relative stability in the foreign exchange market. Thus far the bank has sold approximately US$552Mn to the foreign exchange market since October 2021 to complementing its policy rate increases. This is more than twice the amount when compared with the previous corresponding period. 
• While inflation is forecasted to rise further over the next two months, the Bank forecasts that the rate will fall in the second half of the year, consistent with consensus forecast for a fall in commodity prices. This means that the public should start to see lower inflation rates each month, beginning in the latter part of the second half of 2022, as long as tensions between Russia and Ukraine do not escalate and inflation among Jamaica’s trading partners falls.

(Source: BOJ)