Bank of Jamaica Reduces the Policy Rate to 6.25% as Inflation Stabilises Within the Target Range

• The Bank of Jamaica's Monetary Policy Committee (MPC) reduced the policy rate by a further 25 basis points (bps) to 6.25% per annum, effective 22 November 2024. In the meeting, the MPC also agreed to preserve relative stability in the foreign exchange market.
• This latest rate reduction brings the cumulative cuts to 75bps since the BOJ pivoted its monetary policy stance earlier this year on an improved inflation outlook. The continued easing of monetary policy is also a much-needed stimulus for the economy amid the slowdown in activity in Q2 and the subsequent 2.8% contraction in the third quarter.
• Inflation for October 2024 was 4.9%, down from 5.7% in September, and within the Bank’s target range of 4.0–6.0%. Core inflation, which excludes the most volatile inflation components, has remained below 6.0% for 16 consecutive months, indicating stable price pressures.
• Inflation is expected to remain within the target range over the next two years due to declining international grain prices and moderating inflation in trading partner economies. Private sector inflation expectations are also improving, supported by stable foreign exchange market conditions.
• Notwithstanding the encouraging inflation outlook, notable risks include economic policy changes among trading partners, geopolitical tensions, adverse weather and labour market pressures. The MPC emphasised that future interest rate adjustments will be based on incoming data and reaffirmed its commitment to foreign exchange stability.
• Given the sharp contraction in economic activity and inflation pressures subsiding, a more aggressive pace of rate reduction would be welcomed by local interests. However, the BOJ appears to be balancing the risks to inflation from a weaker exchange rate if the interest rate differential between the JMD-USD widened.

(Source: BOJ)