December 21, 2021

Bank of Jamaica (BOJ) announces its decision to increase the policy interest rate (the rate offered to deposit-taking institutions on overnight placements with BOJ) by 50 basis points to 2.50 per cent per annum, effective 21 December 2021. Accompanying this rate increase, the Bank decided to maintain other measures to contain Jamaican dollar liquidity expansion and to ensure that further movements in the exchange rate do not threaten the inflation target. The MPC agreed to consider further increases in the Bank’s policy rate and accompanying measures at subsequent policy meetings, subject to inflation expectations and other macroeconomic data evolving as projected.

In general, monetary policy decisions taken by Bank of Jamaica are aimed at ensuring that the annual increase in the prices of consumer goods and services (i.e. inflation) remains within the Bank’s inflation target of 4.0 per cent to 6.0 per cent. So far, in the wake of its recent monetary policy adjustments, interest rates in the money market have increased, overnight placements (or liquid balances) by deposit-taking institutions at Bank of Jamaica have declined and deposit rates have started to rise. Further, the indications from the Bank of Jamaica’s credit conditions survey are that deposit-taking institutions plan to increase interest rates on loans, albeit marginally.

The decision to further reduce the level of monetary policy accommodation was made by a unanimous vote by the Bank’s Monetary Policy Committee (MPC). This was based on the MPC’s assessment that inflation at November 2021 of 7.8 per cent, breached the upper limit of the Bank’s target range and was likely to continue to successively breach the target range over the next 8 to 10 months. The risks to the inflation forecast are assessed to be skewed to the upside. Upside risks (which means that inflation could track above the forecast) include further increases in inflation expectations, stronger pass-through of international commodity and
shipping prices to domestic prices, higher inflation among Jamaica’s main trading partners and the impact of adverse weather on agricultural food prices. Downside risks include lower energyrelated prices and lower domestic demand.

The MPC’s action was therefore necessary to limit the second-round effects of the commodity price shocks and to guide inflation back within the target range over the next two years.

A summary of the discussions influencing today’s monetary policy decision by the MPC has been published on the Bank’s website. The date of the next policy decision announcement is 18 February 2022.

Summary of Monetry Policy Discussion and Decision December 2021


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