BOJ Likely To Hold At 5.50% Through 2026 As Inflation Risks Rebuild

• Fitch BMI expects the Bank of Jamaica (BOJ) to hold the policy rate at 5.50% at its March 31, 2026, meeting. The central bank maintained a cautious, mildly hawkish bias, delivering only one cut in 2025 in May 2025 and this prudence is expected to extend through 2026 as the BOJ continues balancing macroeconomic stability, policy credibility and anchored inflation expectations.
• Against this backdrop, the baseline is that policymakers will assess the impact of February’s rate cut alongside expansionary fiscal conditions, rather than risk undermining recent gains in price stability.
• Although the February 2026 easing in the policy rate occurred earlier than previously expected, January’s softer inflation outturn indicated that the inflation shock from Hurricane Melissa was more contained than initially feared. This allowed the BOJ to provide targeted support to a storm-affected economy without materially worsening near-term inflation dynamics.
• However, Fitch BMI expects the policy rate to close 2026 at 5.50%. This projection considers that price pressures will strengthen through 2026, reflecting reduced productive capacity and fiscal stimulus effects.
• Overall, inflation is forecast to average 6.1% in 2026, reinforcing expectations that the BOJ will pause further easing to preserve macroeconomic stability and limit upside risks to inflation. However, this is contrast with the BOJ's MPC who expects inflation to generally track within the target over the next eight quarters, although it anticipates temporary breaches of the upper limit in the June and September 2026 quarters, before inflation is projected to return to the 4.0%–6.0% target range by end-December 2026. This improved profile reflects a moderation in projected second-round price effects and a decline in private-sector inflation expectations toward more normal levels.
• Notably, the Jamaican dollar is expected to remain broadly stable, ending 2026 near JMD162/US$, compared with JMD159/US$ at end-2025. Currency resilience in the immediate post-hurricane period reflected the Central Banks’s FX market support, elevated domestic interest rates, and moderating US dollar strength, all of which helped dampen inflation pass-through. Still, Fitch BMI believes that rate cuts could reintroduce depreciation pressures, posing risks to sustaining favourable inflation trends.
• Risks to the outlook are two-sided. Further moderation in inflation in February 2026, driven by weaker domestic demand and contained imported prices, could create room for additional easing, while severe weather shocks during the year could push inflation above projections and prompt the BoJ to adopt a more restrictive policy stance than currently expected.

(Source: BMI, A Fitch Solutions Company)