By Bank of Jamaica
KINGSTON, Jamaica – Bank of Jamaica’s (BOJ’s) Monetary Policy Committee (MPC), at its meetings on 16 and 19 August 2024, assessed that the prevailing economic environment is conducive to a further cautious easing of its monetary policy stance and unanimously agreed to: (i) reduce the policy rate by 25 basis points (bps) to 6.75 per cent per annum, effective Wednesday, 21 August 2024; (ii) continue the gradual reduction of BOJ’s absorption of liquidity from deposit-taking institutions (DTIs) through open market operations; and (iii) preserve relative stability in the foreign exchange market.
The MPC noted that its previous decision, announced on 28 June 2024, to gradually reduce the absorption of liquidity, has already resulted in an injection of $20.5 billion into the system and a 105 bps reduction in the interest rates on BOJ’s 30-day Certificates of Deposit.
As a consequence, treasury bill rates fell by between 20 bps and 72 bps over the period 01 July 2024-to-date. The Committee concluded that inflation is becoming more anchored in the Bank’s target range of 4.0 to 6.0 percent. Annual headline inflation at July 2024, as reported by the Statistical Institute of Jamaica (STATIN), was 5.1 percent.
This outturn was below the bank’s most recent forecast and July was the fifth consecutive month in which inflation fell within the bank’s target range.
One measure of core inflation that excludes the prices of agricultural food products and fuel was 4.5 percent at July 2024, which represented a progressive lowering of underlying inflation since the start of 2024.
In arriving at the monetary policy decision, the MPC noted that, despite the effects of hurricane Beryl, inflation is projected to largely remain within the bank’s target range over the next two years.
Inflation is projected to temporarily rise from its current level and breach the upper end of the bank’s target range over the next three to five months (August to December 2024).
This near-term forecast largely reflects the negative impact of hurricane Beryl on agricultural supplies and related increases in other consumer prices.
Following this shock, inflation is projected to return to the target range. Economic conditions are generally supportive of low, stable and predictable inflation in the future.
The MPC noted that, as stated by the government, domestic fiscal policy will address the post-hurricane recovery efforts by utilising existing savings and insurance and re-prioritising expenditures.
In this context, the MPC is of the view that fiscal policy will continue to pose no risk to inflation over the near term. The lagged effect of the Bank’s relatively tight monetary policy posture also continues to impact the economy. Against this background, domestic demand conditions are moderating, as reflected in selected sectors of the economy and in easing wage pressures.
The net flow of new domestic currency loans to the private sector (expressed in constant prices) for the June 2024 quarter was consequently lower than the flows in both the March 2024 and the June 2023 quarters.
Inflation expectations in Jamaica are on a consistent downward path and the exchange rate has been fairly stable. The domestic price level has also been favourably supported by some international commodity prices as well as by the continued reduction in inflation in the United States. The risks to the inflation outlook are balanced (which means that inflation is likely to be in line with projections).
Rising international shipping costs, worse-than-anticipated impact of hurricane Beryl and other adverse weather conditions could influence higher inflation. The factors that could result in lower-than-projected inflation include weaker-than-projected global growth, which could reduce domestic demand and imported inflation.
The MPC noted that any future monetary policy decision to further reduce interest rates will continue to depend on the incoming data.
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 30 September 2024.
