June 30, 2023
The Monetary Policy Committee (MPC) of the Bank of Jamaica (BOJ) unanimously decided to maintain the policy interest rate at 7% despite headline inflation, which was 6.1% at May 2023, being above the Bank’s target range. This should maintain tight Jamaican dollar liquidity and preserve relative stability in the foreign exchange market.
The MPC’s decision was influenced by its assessment that recent developments, which include notable reductions in inflation over the past few months, were generally favourable. Despite this, the risks to the inflation outlook remain balanced. The rise in inflation is expected to prolong above the Bank’s target range for June and during the September 2023 quarters. The primary external sources of headline inflation, such as grains, fuel, and shipping prices, have continued to fall in line with the Bank’s projections, and inflation expectations continued to trend downward. Core inflation has also slowed to 4.2% in May, relative to 9.7% in May 2022.
Interest rates have generally risen in line with the policy rate in the domestic money and capital markets and the term rates offered by deposit-taking institutions (DTIs). However, slight changes continued to be made to saving deposits and loans including mortgages, in the DTI sector. Overall, the domestic banking system remains sound with adequate capital and liquidity.
There is continued growth in the economy, as such Gross domestic product (GDP) for fiscal year 2022/23 is estimated between 4.0% to 5.0%. This is in line with the range previously anticipated by the Bank, notwithstanding the impact of drought conditions on the agriculture sector. The GDP growth for FY2023/24 is expected to moderate between 1.0% to 3.0%.
Future monetary policy decisions aimed at returning inflation to the Bank’s target range will depend on the incoming data. BOJ will continue to closely monitor the global and domestic economic environments for potential threats to Jamaica’s inflation target.
Notably, The US Federal Reserve Board (Fed) paused its monetary tightening in June 2023 as expected, however recent developments suggest that interest rates in the US could increase further.
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