February 24, 2026

Bank of Jamaica Cuts Policy Rate to 5.50% as Inflation Outlook Improves

The Bank of Jamaica (BOJ) has moved to ease monetary policy, cutting its benchmark interest rate by 25 basis points to 5.50 per cent per annum, effective February 24, 2026. The decision, reached unanimously by the BOJ’s Monetary Policy Committee (MPC) during its two-day meeting on February 19 and 20, reflects growing confidence that inflation is on a sustainable path back toward the central bank’s target range.

The rate cut marks a significant signal from the central bank that the worst of the inflationary pressures stemming from Hurricane Melissa have proven less damaging than feared. A swifter-than-anticipated recovery in agricultural production, coupled with a mild appreciation of the Jamaican dollar, helped push annual headline inflation down to 3.9 per cent in January 2026, below the BOJ’s own projection and lower than the 4.5 per cent recorded in December 2025. Core inflation, which strips out volatile food and fuel prices, similarly eased to 3.9 per cent from 4.2 per cent the month prior.

“The direct impact of Hurricane Melissa on inflation was less severe than initially anticipated,” the MPC noted in its statement, pointing to improved food supplies and exchange rate dynamics as key drivers of the better-than-expected outcome.

Inflation Expected to Return to Target by Year-End

While the BOJ cautions that headline inflation could temporarily breach the upper limit of its 4.0 to 6.0 per cent target band during the June and September 2026 quarters, the Committee now projects inflation will settle back within that range by the close of December 2026, earlier than previously forecast. This improved outlook is underpinned by a moderation in projected second-round price effects and expectations that private sector inflation expectations will normalise in the near term.

The MPC identified a broadly balanced set of risks to the inflation forecast. On the downside, a slower-than-expected recovery in domestic demand could keep inflation lower. On the upside, adverse weather events, elevated inflation expectations, and increased spending fuelled by post-hurricane reconstruction efforts could exert upward pressure on prices. Of particular note is the government’s temporary suspension of the fiscal rule, which will permit fiscal deficits over the next three years. The MPC acknowledged that the resulting increase in public spending, while necessary for recovery, carries the potential to strain the economy’s productive capacity and generate additional second-round inflationary pressures.

The Committee also flagged that Jamaica’s current account deficit is expected to widen in the near term as reconstruction imports pick up, though it stressed that international reserves remain healthy and are projected to improve further over the medium term.

A Commitment to Exchange Rate Stability

Alongside the rate decision, the MPC reaffirmed its commitment to active intervention in the foreign exchange market to preserve relative stability in the Jamaican dollar. The dual mandate of easing monetary conditions while guarding against foreign exchange volatility reflects the central bank’s careful balancing act as the economy navigates its post-hurricane recovery.

What This Means for Jamaicans

The reduction in the policy rate is designed to transmit through the financial system by making borrowing more affordable. For households and businesses, the move could gradually translate into lower lending rates, easing the cost of mortgages, personal loans, and business credit.

The BOJ also confirmed that the recently announced government tax package was factored into its inflation projections, suggesting that policymakers have a relatively clear picture of the fiscal landscape ahead.