March 30, 2023
The Monetary Policy Committee (MPC) of the Bank of Jamaica (BOJ) unanimously decided to keep the policy interest rate at 7%, to maintain tight Jamaican dollar liquidity, and to preserve relative stability in the foreign exchange market. The BOJ’s strategy to regulate liquidity factors in the impact of the recent one percentage point increase in the domestic and the foreign currency Cash Reserve Requirements applicable to deposit-taking institutions (DTIs), which takes effect April 1, 2023.
The MPC’s decision was influenced by its assessment that incoming data were generally favourable for inflation trending downward and reverting to the target range of 4% – 6% by the quarter ending December 2023. The primary external sources of headline inflation, such as grain, fuel, and shipping prices, have continued to fall largely in line with the Bank’s projections, and inflation expectations continued downward. Core inflation has also slowed to 6.6% in February, down from 7.1% in January 2023.
Interest rates have generally risen in line with the policy rate in the domestic money and capital markets and the term rates offered by DTIs. However, only slight changes have been made to saving deposits and lending rates in the DTI sector thus far.
The probability that Gross Domestic Product (GDP) will grow by 4.0% – 5.5% for the fiscal year 2022/23 remains high. For the quarter ended December 2022, GDP is estimated to have grown by 3.0% – 4.5%, driven by continued strong growth in Tourism and its allied services, Manufacturing, Installation and Agriculture. For the March 2023 quarter, a 4.0% – 5.0% growth is expected.
Future monetary policy decisions aimed at returning inflation to the Bank’s target range will depend on the incoming data. The BOJ will continue to closely monitor the global and domestic economic environments for potential threats to Jamaica’s inflation target and continue its review of the monetary transmission mechanism to ensure that monetary policy achieves the desired impact on inflation.
The pace of monetary tightening by the US Federal Reserve Board (Fed) also slowed as expected, and recent developments in the US banking system suggest that this slowing could continue as interest rates in that economy may be near their peak.
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