BOJ keeps rates stable despite waning inflation
Published:Friday | June 28, 2024 | 7:29 PM
The Bank of Jamaica (BOJ) expects inflation to stay within the 4.0 to 6.0 per cent target range in the forthcoming months, but says it will keep its key interest rate unchanged at 7.0 per cent, which most businesses expected.
“The Monetary Policy Committee (MPC) decided to maintain the policy rate at 7.0 per cent per annum, at this time, and to continue its proactive stance of preserving relative stability in the foreign exchange market,” stated the BOJ, but it acknowledged that inflation has eased from the pandemic peak.
Given the slowing of inflation, the BOJ said it will gradually ease its monetary policy stance.
This includes reducing BOJ's absorption of liquidity from deposit-taking institutions through open market operations, facilitating additional credit to the productive sector and gradual rate reductions in the money market.
The policy rate has remained unchanged since 2022, but continues to shape the country's economic landscape.
Two-thirds of Jamaica's businesses expected rates to remain unchanged, based on BOJ's own canvassing of the sector in its recent inflation surveys.
Chairman of Barita Investments Mark Myers this morning likened high interest rates to an additional cost on production. He described the steady rise in interest rates from 0.5 per cent to 7.0 per cent as “one of the sharpest policy rate increases on record”.
Barita, like other brokerage firms, made less profit on interest trading, as the interest it earns and what it pays customers shrunk. Also, from an investment banking perspective, it reduced the appetite for clients seeking project financing.
“It was challenging to originate deals given that corporate entities have largely decided to postpone their major capital raises for a future period,” said Myers on Friday at the company's annual general meeting.
The MPC will next meet in August to decide whether to adjust the policy rate.
The rise in rates was a key measure to curb inflation which jumped from 3.8 per cent in April 2021 to a peak of 11.8 per cent in April 2022, or well beyond the target range.
Over the last three years, the BOJ said it implemented a stringent monetary stance, using a three-pronged approach. This included raising the policy rate by 650 basis points to 7.0 per cent, tightening Jamaican dollar liquidity in the money market, and using foreign reserves to stabilise the foreign exchange market.
Recent data from the Statistical Institute of Jamaica (STATIN) put annualised inflation to May at 5.2 per cent. This marked the third consecutive month within the target range and the fourth month of declining inflation.
The BOJ projects inflation to stay within the target range over the next two years, except for a few months in 2025, primarily due to anticipated increases in agricultural prices.
“The projected breaches of the upper limit of the inflation target range in 2025 largely reflect an acceleration in agricultural price inflation, following sharp declines in March 2024,” the BOJ stated.
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