Bank of Jamaica Maintains the Policy Rate at 7%

  • At its meetings on the 16th and 17th of August 2023, the Monetary Policy Committee (MPC) opted to maintain the policy interest rate (the rate offered to DTIs on overnight placements) at 7.0% and continue to maintain relative stability in the foreign exchange market.
  • Jamaica’s inflation rate of 6.6% in July 2023, while slightly above the 6.3% recorded in June 2023, is significantly below the 11.8% recorded in April 2022. Core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) in July 2023 of 5.2% was also considerably lower than the 8.4% recorded in April 2022.
  • While the key drivers of headline inflation, such as grain prices, shipping costs and inflation expectations, continued to decline, there was exceptionally high agricultural price inflation in June and July 2023, which reflected the impact of prevailing drought conditions.  Additionally, there have been ongoing upward adjustments in the price of meals consumed away from home, and the first-round effect of the adjustment in the national minimum wage was recorded in the June 2023 CPI.
  • The uptick in inflation over the past three months is projected to continue for the remainder of the September 2023 quarter, driven by higher agricultural prices, higher education costs and wage pressures. Inflation is, however, expected to generally decelerate to the Bank’s target range of 4.0 to 6.0% by the December 2023 quarter and except for a few months in 2024, should remain there. The forecast assumes that international grain prices will increase in the September 2023 quarter, consequent on a rise in geopolitical tensions between Russia and Ukraine.
  • Inflation could, however, rise above this forecasted path. Higher-than-projected future wage adjustments in the context of the tight domestic labour market, second-round effects from the agricultural price inflation, a worsening in supply chain conditions and an elevation of world oil prices could put further upward pressure on inflation.
  • However, inflation expectations for the 12 months ahead declined to 8.3% in June 2023 from 9.6% in the previous survey and its peak of 12.8% in April 2022. This was due mainly to businesses’ perception of the authorities’ control of inflation which improved in the June 2023 survey relative to the previous survey. 
  • Downside risks to this outlook include weaker-than-expected global growth, which could reduce domestic demand, and the non-materialisation of some projected increases to regulated prices.
  • The MPC noted that future monetary policy decisions will depend on the incoming data related to the indicators of the above-noted potential headwinds to inflation. The Bank will continue to closely monitor the global and domestic economic environments for potential risks to Jamaica’s inflation rate and act accordingly.

(Source: BOJ)