BOJ maintains the policy rate

KINGSTON, Jamaica – Bank of Jamaica’s (BOJ) Monetary Policy Committee (MPC), at its meetings on 16 and 19 February 2024, unanimously agreed to maintain: (i) the policy interest rate (the rate offered to deposit-taking institutions (DTIs) on overnight placements with Bank of Jamaica) at 7.0 percent; and (ii) stability in the foreign exchange market. The MPC, however, decided to further tighten Jamaican dollar liquidity conditions.

The MPC’s decision was taken against the background of Jamaica’s headline inflation at January 2024 of 7.4 percent, tracking upward relative to the outturns for the previous three months and remaining above the bank’s target of 4.0 to 6.0 percent.

The higher-than-targeted headline inflation at January 2024 continued to largely reflect the impact of higher regulated prices, including the first of a two-part increase in public passenger vehicle (PPV) fares effective October 2023, as well as the effect of wage increases throughout the economy. The inflation outturn also reflected high agricultural food inflation. Partly offsetting the impact of these factors was a reduction in Jamaica Urban Transit Company fares. Given the shocks to headline inflation, core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) was 5.9 percent at January 2024, broadly consistent with the average for 2023 but lower than the 9.7 percent and 7.1 percent at January 2022 and January 2023, respectively.

The longer-term inflation outlook continues to be generally positive. Key drivers of headline inflation, such as inflation expectations and the exchange rate, have remained generally stable. Grains prices have also declined and are projected to continue to fall in the context of buoyant supplies. However, as a result of the above-noted price shocks, including the projected impact of the second phase of the PPV fare increase, which is scheduled to take effect in April 2024, inflation is forecasted to remain above the bank’s target range over the March 2024 and June 2025 quarters. Without the impact of the second increase in PPV fares, inflation at December 2024 would fall within the target range of 4.0 – 6.0 percent.

The risks to the inflation outlook remain elevated. On the upside, higher-than-projected second-round effects from the PPV fare increases, higher wage adjustments in the context of a tighter labour market and a further deterioration in supply chain conditions could influence higher inflation. In particular, shipping freight rates have recently risen amid ongoing geopolitical tensions and supply chain disruptions, which could eventually affect other prices such as grains and finished goods. The factors that could result in lower-than-projected inflation include weaker-than-projected global growth, which could reduce domestic demand and imported inflation resulting in lower levels of price changes.

Future monetary policy decisions will, therefore, continue to depend on incoming data related to the strength of the potential risks to inflation noted above. The Committee will maintain heightened surveillance of these risks to the inflation outlook. The MPC remains committed to utilising the full set of tools to support the policy decisions and is prepared to take the necessary actions, including further interest rate increases, if the upside risks to inflation highlighted above materialise.

A summary of the Monetary Policy Committee’s discussions, which influenced the monetary policy decision, has been published on the bank’s website. The date of the next policy decision announcement is 28 March 2024.