BOJ expects inflation to rise, maintains policy rate at 7%

The Bank of Jamaica, BOJ, on Friday said that it foresees inflation rising above the four to six per cent target range over the months of June to September 2023, data which fed into its decision to hold key interest rate steady at 7.0 per cent for the seventh consecutive period.  

Key interest rate, which is the overnight rate that the central bank applies to funds deposited at the BOJ by banking institutions, has sat at 7.0 per cent since 2022.  

Jamaica's productive industry was betting heavily on the outcome of a reduction in the rate from the Monetary Policy Committee's meetings held on May 17 and 18, following data from the Statistical Institute of Jamaica, STATIN, which showed that Jamaica's headline inflation rate at April 2023 of 5.8 per cent was marginally below the Bank's expectations and represented a return to the target range for the first time since July 2021.  

But even before that, annualised inflation had been consistently falling, landing at 6.2 per cent for March 2023, down from 7.8 per cent in February 2023.  

Still, the MPC said in its May decision that it will maintain key interest rate at 7.0 per cent as a precautionary measure to inflation rising above the target range over the next three months, largely on recent increases in the cost of communication services and the national minimum wage, seasonally higher agricultural prices as well as pending increases in other regulated prices, such as transport costs.  

“Higher-than-projected future wage adjustments, a stronger-than-anticipated impact of climate change on domestic agricultural prices and a worsening in supply chain conditions could put upward pressure on inflation. Further, higher-than-projected interest rates among major developed economies could worsen the interest differential, increase the pace of depreciation in the exchange rate and cause higher inflation,” the BOJ said in a press release on Friday. 

However, the central bank added that consistent with global consensus forecasts for a fall in commodity prices and the Bank's overall monetary policy stance, and in the absence of new shocks, inflation is projected to generally trend back towards the Bank's inflation target range of 4.0 to 6.0 per cent by the December 2023 quarter. 

It said the risks to the inflation outlook are balanced, and that factors, including weaker-than expected global growth and unrealised adjustments to regulated prices, could lead to lower-than-projected inflation. 

Meanwhile, the BOJ said the Jamaican economy continues to grow strongly.  

Gross domestic product, GDP, for fiscal year 2022/23 is projected in the range 4.0 to 5.5 per cent, in line with the range previously anticipated by the Bank.  

“There are signs that the economy continued to expand for the June 2023 quarter and GDP growth for FY2023/24 is projected to moderate between 1.0 and 3.0 per cent,” the central bank said.  

The Bank says it will continue to closely monitor the global and domestic economic environments for potential risks to Jamaica's inflation rate and that future monetary policy decisions to maintain inflation within the Bank's target range will depend on the incoming data.  

The date of the next policy decision announcement is June 29, 2023. 

- Karena Bennett

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