BOJ Holds Policy Rate at 5.50% in May 2026 Amid Inflation Risks

• Following its meetings on 19 and 20 May 2026, the Bank of Jamaica's (BOJ's) Monetary Policy Committee (MPC) unanimously decided to maintain the policy rate at 5.50%. The decision was framed against a backdrop of heightened global uncertainty stemming from the deepening conflict in the Middle East, which has driven further increases in key international commodity prices, particularly crude oil.
• The MPC assessed that maintaining the current stance remains appropriate to limit second-round price increases resulting from higher international commodity prices. Annual headline inflation stood at 4.3% at April 2026, in line with March 2026 but above the Bank's projection, while core inflation rose to 4.1% (Mar-26: 4.0%). Prospectively, headline inflation is forecast to trend upward over the June 2026 and September 2026 quarters and breach the 4.0%–6.0% target range, with the extent of the breach contingent on the severity and duration of the conflict.
• Since the Bank's March 2026 assessment, the Middle East conflict has deepened, with more extensive damage to critical oil infrastructure and supply chain disruptions, leaving international fuel prices projected to remain elevated. This is expected to place upward pressure on electricity costs in Jamaica, while domestic gas prices have already risen and may accelerate further, feeding into transport-related inflation and broader second-round price increases across goods and services.
• Nonetheless, headline inflation is forecast to gradually return to the Bank's target range as global oil supplies return to normal levels. However, this is expected to be partly offset by domestic demand pressures, stemming primarily from fiscal spending to support post-Hurricane Melissa rebuilding efforts.
• Even so, inflation risks are skewed to the upside, driven by the potential for a broader Middle East conflict, El Niño-related pressure on agricultural prices, and stronger-than-anticipated post-hurricane recovery spending. Inflation expectations have already begun shifting, with the April 2026 business survey showing 12-month-ahead expectations rising to 7.1% from 6.5%. Weaker consumer purchasing power provides a partial offset on the downside.
• The BOJ also continues to monitor key indicators and stability metrics. Private sector credit growth moderated to 6.5% in the March 2026 quarter (Dec-25: 7.8%), reflecting a slowdown in lending to both businesses (+5.1% vs. +7.5%) and individuals (+7.5% vs. +8.3%). The domestic banking system remains sound with adequate capital and liquidity.
• Real GDP growth for FY2026/27 is projected between 1.0%–3.0%, with risks skewed to the downside reflecting the potential adverse effects of the Middle East conflict on services industries, alongside the drag from higher imported input costs. The negative impact of the conflict on the external accounts is also expected to be significant, though the Bank's strong foreign reserves continue to provide an important buffer, supporting the orderly functioning of the FX market and helping to contain imported inflation.
• Overall, the MPC signalled a cautious but vigilant approach, emphasising its readiness to adjust the monetary policy stance if the Middle East conflict is protracted and results in sustained price increases. The next policy decision announcement is scheduled for 29 June 2026.

(Sources: Bank of Jamaica & NCBCM Research)