The Bank of Jamaica (BOJ) announced today that it dropped its key policy rate by 25 basis points to 6.5 per cent, marking its second rate cut since the start of its expansionary policy in August. 

The rate takes effect tomorrow, Tuesday, October 1, and will apply to institutions conducting business with the Central Bank. In the coming months, financial institutions are expected to gradually reprice loans to consumers at slightly lower borrowing costs. 

The adjustment followed a meeting of the Monetary Policy Committee (MPC) last Thursday and Friday. The MPC will next meet on November 21 and could cut rates further.

The BOJ's decision reflects an improved inflation outlook, despite inflation rising to 6.5 per cent in August, up from 5.1 per cent in July. That's because the Central Bank expects inflation to return to its target range of 4.0 to 6.0 per cent within the next few quarters.

“Recent developments suggest that headline inflation will return to the bank's target range earlier than initially forecast. This outlook largely reflects the possibility of a lower-than-anticipated impact of Hurricane Beryl on agricultural supplies,” stated the BOJ in its policy decision.

“Additionally, some key drivers of headline inflation continued to moderate in the context of falling international commodity prices.”

The BOJ also reduced interest rates by 25 basis points in August from 7.0 per cent to 6.75 per cent.

Since October 2021, the BOJ steadily raised interest rates from 0.5 per cent to 7.0 per cent, to control inflation. Recent data suggest these inflationary pressures are easing locally and globally. By lowering the policy rate, the BOJ aims to reduce the cost of capital, making borrowing more affordable for consumers and businesses.

The Central Bank also highlighted its continued focus on preserving exchange rate stability and managing domestic liquidity in the months ahead.

Follow The Gleaner on X and Instagram @JamaicaGleaner and on Facebook @GleanerJamaica. Send us a message on WhatsApp at 1-876-499-0169 or email us at onlinefeedback@gleanerjm.com [2] or editors@gleanerjm.com [3].