August 19, 2022
The trend of the last three CPI figures has encouraged the Bank of Jamaica (BOJ) to increase the policy interest rate by 50 basis points to 6% per annum effective August 19, 2022. After peaking quicker and lower than projected in April 2022, inflation was 10.9% in May and June, and 10.2% in July. This trend was enabled by falling international commodity prices, relative stability in the exchange rate, and increased interest rates; however, BOJ believes that these factors have not cemented sufficiently to assure that inflation will remain on a downward path indefinitely.
Hence, the BOJ also decided on continuing its advent to contain the liquid expansion of the Jamaican Dollar and maintain relative stability in the foreign exchange market as well as continue to closely monitor the global and domestic economic environment. Should incoming data reflect a downward track of inflation, the BOJ is prepared to pause its monetary policy tightening.
The BOJ’s current decision has led to a cumulative rise in the policy rate of 550 basis points since October 2021, bringing the policy rate to a level that the Monetary Policy Committee (MPC) tentatively deems appropriate. Since October 2021, the BOJ has taken aggressive actions in the foreign currency market, including an adjustment to the Net Open Position limitations for deposit-taking institutions (DTIs) and the sale of foreign exchange to the market when necessary, while maintaining a flexible exchange rate.
These policy measures have helped to keep the foreign exchange market stable, and without them, consumer prices would have been higher. The Bank’s gross reserves have stayed comfortably above the level regarded as acceptable, bolstering its capacity to support the foreign currency market as needed.
Inflation is expected to broadly stabilize during the rest of the year, in line with the Bank’s overall monetary policy stance and the mainstream expectation for a drop in commodity prices. This implies that, assuming no unexpected shocks, the public may expect monthly annual inflation rates of 9% to 11% for the rest of 2022. As long as the situation between Russia and Ukraine does not develop and inflation among Jamaica’s trading partners continues to decline, inflation is expected to fall to single digits in early 2023 and join the Bank’s target range by the end of 2023.
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