BOJ Hikes Rate by 50 Bps in September 2026

• The Bank of Jamaica’s (BOJ’s) Monetary Policy Committee (MPC) unanimously increased the policy rate by 50 basis points (bps) to 6.0% at its September 24–25, 2026 meetings, bringing the policy rate to levels last seen in April 2025. The hike takes effect today, September 29 and represents the first rate change since the BOJ cut rates in February of this year.
• The decision was in response to a deterioration in the inflation outlook since the previous meeting, as escalating tensions in the Middle East and the Russia-Ukraine conflict have contributed to persistently high international commodity prices. Worsening El Niño conditions have also placed further pressure on domestic agricultural prices, exacerbating inflationary pressures. Considering these factors, the MPC judged that tighter policy was necessary to limit second-round effects and prevent elevated inflation from becoming embedded in expectations.
• Headline inflation accelerated to 7.9% in August 2026, from 7.5% in July and 1.2% in August 2025, marking the third consecutive month above the upper end of the BOJ’s 4.0%–6.0% target range. The increase was primarily driven by higher agricultural prices following drought conditions and reduced crop yields, particularly for vegetables, alongside the pass-through of higher international commodity prices to domestic energy costs. Core inflation, which excludes agricultural food products and fuel, remained at 5.2%, unchanged from July but above the 4.2% recorded a year earlier, with the BOJ noting emerging, although still limited, second-round effects on processed food and selected services.
• The BOJ now expects inflation to continue rising in the near term before returning to the target range by mid-2027. This, however, is hinged on the duration of geopolitical conflicts. Higher international commodity prices are expected to continue feeding into domestic energy and transportation costs, while worsening El Niño conditions could cause agricultural prices to rise further. Inflationary pressures could also be reinforced by increased domestic demand associated with the Government of Jamaica’s recovery spending and the normalisation of activity following Hurricane Melissa. The MPC’s latest assessment therefore represents a less favourable near-term inflation outlook than at its August meeting.
• Inflation risks over the next eight quarters remain skewed to the upside, with rising expectations adding to concerns over more persistent price pressures. Businesses’ 12-month inflation expectations increased to 7.3% in July from 6.7% in June, while indicating likely wage pressure in the economy. Furthermore, the MPC also highlighted higher agricultural prices and stronger-than-expected domestic spending as key risks. More prolonged geopolitical tensions could further increase the pass-through of international commodity prices into domestic inflation, although weaker consumer purchasing power could partially offset these pressures by reducing demand.
• Despite the more restrictive policy stance, Jamaica’s healthy international reserves and relatively stable foreign exchange (FX) rate continue to provide an important buffer against external shocks. The MPC noted that global financial conditions have tightened faster than previously projected, including the Federal Reserve’s 25bps increase in September to 3.75%–4.00%. However, adequate reserves should continue to support FX market stability and limit the extent of imported inflation. Against this backdrop, the BOJ noted that it remains prepared to deploy additional policy tools if necessary to contain second-round inflation pressures and return inflation to target.

(Sources: JSE & NCBCM Research)