October 2, 2023
The Monetary Policy Committee (MPC) of the Bank of Jamaica (BOJ) unanimously agreed to maintain the policy interest rate at 7%. This should maintain tight Jamaican dollar liquidity enable stability in the foreign exchange market. The Committee’s decision is intended to ensure that the country’s inflation rate continues to trend downward to the Bank’s target range of 4.0% to 6.0%.
Notably, headline inflation recorded for August 2023 of 6.8% was slightly above the outturn at July (6.6%) but much lower than the peak rate of 11.8% recorded at April 2022. Correspondingly, core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) increased to 5.6% at August 2023 from 5.5% at July 2023, but was lower than the 8.4% recorded at April 2022.
The upward movement in inflation over the period was driven by several shocks, such as, telephone and internet rates, the national minimum wage and higher agricultural price inflation, along with some increases in energy-related prices such as water, electricity, and transportation costs. The other key drivers of inflation, such as grains prices, shipping costs and inflation expectations, however, continued to generally trend downward.
The MPC anticipates that the higher-than-targeted inflation rate will continue and be supported by higher agricultural prices, education costs, oil prices and wage pressures. While the Bank is still projecting that inflation will gradually decline to the target range in the December 2023 quarter and generally remain there except for some months in 2024, it has heightened its surveillance of the risks to this outlook.
The Committee noted factors that could put further upward pressure on inflation are higher-than-projected future wage adjustments in the context of continued tightness in the domestic labour market, second-round effects from the sharp increase in agricultural price inflation over the first half of 2023, worsening supply chain conditions and continued increases in world oil prices. However, downside risks to this outlook include weaker-than-expected global growth, which could reduce domestic demand, and the non-materialisation of some projected increases in regulated prices.
Notwithstanding severe of drought conditions on the agriculture sector, Gross domestic product (GDP) for the June 2023 quarter is estimated to have grown within the range of 1.0% to 3.0%, and there are signs that the economy continued to expand in the September 2023 quarter. The notable decline in the unemployment rate as at April 2023 to 4.5%, supported by anecdotal information about wage adjustments in selected private sector industries, indicates that the domestic labour market remains very tight.
The MPC concluded that if the emerging risks to inflation materialize, they are prepared to take the necessary actions, including further tightening of monetary policy.
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