Jamaica's Policy Interest Rate Remains at 7%

• At its meetings on 16 and 17 May 2024, the Bank of Jamaica’s Monetary Policy Committee (MPC) decided to keep its policy rate at 7%^[1].  This marks over a year since the policy was initially raised to 7.0%, and comes after two consecutive months of decline in the point-to-point inflation rate.
• Jamaica's headline inflation in April 2024 was 5.3%, meeting the Bank's target of 4.0% to 6.0%. This rate was 0.3 percentage points lower than March 2024 and below the Bank's forecast, attributed to a faster-than-expected slowdown in agricultural food inflation. Core inflation, excluding food and fuel prices, was 5.7%, slightly down from March.
• Key drivers of headline inflation, including international grain prices and inflation expectations, have decreased. However, international oil prices have risen. Inflation in Jamaica's main trading partners' economies has continued to moderate, although at a slower pace than projected.
• Inflation is expected to temporarily exceed the upper end of the target range by the end of the June 2024 quarter, driven by seasonal increases in agricultural food prices, normalization of electricity rates, and rising transportation costs due to higher international oil prices.
• Following this period, inflation is projected to return to the target range and maintain stability over the next eight quarters, except for occasional breaches in 2025, primarily attributed to agricultural price adjustments that are not anticipated to repeat.
• The inflation outlook is lower than the Bank's prior forecast primarily because of the Government’s postponement of the second increase in public passenger vehicle fares slated for April 2024. Additionally, reduced international grain prices led to downward revisions in processed food and dining-out costs. However, this decline is partially counteracted by the inclusion of a planned increase in the national minimum wage and heightened inflation in energy and transportation due to rising international oil prices.
• Although inflation is moderating, it remains outside the target range, with future risks leaning towards upward pressure on prices. Core inflation remains elevated at the upper end of the target range, and there are concerns about wage-related pressures and inflation expectations driving inflation higher. Larger-than-expected regulated price adjustments and external factors like higher international oil prices and adverse weather conditions could further elevate inflation.
• The MPC noted that future monetary policy decisions will depend on incoming data related to the risks to inflation stated above. Its next decision will be on June 28, 2024.

(Source: BOJ)

 

^[1] The rate offered to deposit-taking institutions on overnight placements.