November 18, 2022
Despite the downward trend of the key external drivers of headline inflation, BOJ has not yet observed the full pass-through to domestic food prices. In October, Jamaica’s inflation rate increased from 9.3% in September to 9.9%. If inflation expectations, the ripple effect of commodity price shocks and labour market pressures, do not moderate, there is some risk that core inflation will remain high for an extended period.
Additionally, with the fast pace monetary tightening stance that persists among Jamaica’s main trading partners such as the Federal Reserve Board, if domestic monetary policy is not aligned, could result in capital outflows from Jamaica and exchange rate depreciating quicker.
Therefore, effective November 18, 2022, the Bank of Jamaica (BOJ) announced its decision to increase the policy interest rate by 50 basis points to 7% per annum, a cumulative rise of 650 basis points since October 2021. The BOJ also decided on continuing its advent to contain the liquidity 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. The Bank’s international reserves have stayed comfortably above the level regarded as acceptable, bolstering its capacity to support the foreign currency market as needed.
While these measures are intended to constrain aggregate demand and, consequently, limit the ability of businesses to pass on price increases to consumers, the BOJ anticipates that deposit and loan rates will further increase in response to the BOJ’s policy rate signals. As such, the Bank believes that it is wise to halt policy rate rises in order to monitor the impact on deposit and loan rates. The Monetary Policy Committee also needs to see more foreign commodity price declines filter down to domestic prices, and the Fed has to stay within its target range for rate hikes in 2022 and 2023.
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