Bank Of Jamaica Tightens Monetary Policy With Conditional Pause

• The Bank of Jamaica (BOJ) has increased its policy rate by an additional 50bps to 7.00% effective November 18. While the key external drivers of headline inflation, such as grains and shipping prices, continued to trend downwards, the Bank has not yet seen the full pass-through to domestic food prices. This was evident in Jamaica’s inflation rate at October 2022 of 9.9% which was higher than the outturn at September 2022 of 9.3%.
• The decision also factored in the fact that monetary tightening among Jamaica’s main trading partners continued at a fast pace. On 2 November 2022, the Federal Reserve Board (Fed) raised its interest rate target by 75 basis points (bps) and signalled further rate increases. This policy stance could cause capital outflows from Jamaica and a faster pace of exchange rate depreciation if domestic monetary policy is not aligned correctly.
• However, after twelve months into its tightening cycle, the Bank judges that it is appropriate to pause further policy rate increases and to watch the pass-through effects on deposit and loan rates. However, the pause is conditional on the MPC seeing more pass-through of international commodity price reductions to domestic prices and on the Fed not exceeding their targeted rate increase for 2022(4.4%) and 2023 (4.6%).
• The current policy rate is in line with forecast Fitch’s Solution’s forecast that the policy rate for Jamaica would be 7.00% by the end of 2022 and stay constant at that level for 2023. 

(Source: BOJ & NCBCM Research)