Central Bank Hikes Policy Rate as Inflation Contagion Fears Grow

• The Bank of Jamaica (BOJ) will raise its policy rate by a further 50 basis points (bps) to 6.50% at its November 2026 meeting, following the unanimous 50bps hike to 6.00% in September, according to BMI. The tighter policy stance is expected to continue through year-end as elevated inflation pressures risk further unanchoring of inflation expectations and increasing second-round effects. This marks a revision from the research company’s previous expectations that rates would hold through 2026.
• The September rate hike reflected a deterioration in the inflation outlook, with the BOJ seeking to limit the potential spillover of ongoing supply shocks into broader domestic price pressures. Headline inflation remained elevated at 7.9% in August, well above the BOJ’s 4.0%–6.0% target range, while core inflation held at 5.2%. As such, rising inflation expectations and persistent core inflation suggest that second-round effects are beginning to emerge.
• Inflation expectations have also increased, with one-year expectations rising to 7.3% in July from 6.7% in June. Inflation is expected to remain elevated through 2026 and early 2027, as higher global commodity prices, particularly energy prices, continue to feed into domestic costs. Worsening El Niño conditions are also expected to place further pressure on agricultural and food prices, while the effects of Hurricane Melissa continue to weigh on domestic supply.
• The US-Iran conflict remains a key source of uncertainty for Jamaica’s inflation and monetary policy outlook, with oil prices rising above US$100/barrel in September and fuel prices increasing sharply. Diesel prices have risen 53.7%, while transportation inflation accelerated to 14.6% year-over-year (YoY) in August, increasing the risk that higher energy costs become more broadly embedded in domestic prices.
• Overall, the policy rate is projected to end 2026 at 6.50% before easing to 6.00% in 2027, as inflation gradually returns toward the BOJ’s target in the second half of 2027 (H2 2027). However, the trajectory remains highly dependent on the duration of the US-Iran conflict and the resulting impact on global energy prices, with a prolonged conflict presenting upside risks to both inflation and interest rates.

(Sources: BMI, A Fitch Solutions Company & NCBCM Research)