Review of Bank of Jamaica Quarterly Monetary Policy Report – June to September 2021

November 19, 2021

Jamaican dollar liquidity tightened and market interest rates rose. However, inflation expectations remain elevated as such the MPC met and voted unanimously to further increase the policy rate by 50 basis points to 2 percent effective November 17, 2021. The Bank of Jamaica maintained other measures to contain JMD liquidity expansion. Additionally, the Bank ensured that movements in the exchange rate do not threaten the inflation target. Furthermore, the MPC will consider further increases in the policy rate and maintain or intensify the accompanying measures at subsequent meetings.

Impact of policy action on the Economy

An increase in policy rate/increase in market-based interest rates will make JMD Assets more attractive (which implies more saving and will make borrowing more expensive). Increased interest rates will temper demand and moderate the pace of depreciation. Reduced demand in the economy will impact the ability of businesses to pass price increases to consumers.

STATIN reported inflation in October accelerated to 8.5%, representing a third successive breach of the Bank’s target.

MPC’s decision designed to limit second-round effects of recent shocks

Some of the most recent shocks which have caused domestic inflation to rise above the target range include:

  • Large increases in international commodity and shipping prices
  • Significant upward price impetuses from a sharp increase to agricultural prices
  • One-off increases in regulated transportation and energy prices

Outlook for inflation

Over the next 10 months, BOJ expects the peak to range between 8.0% to 9.0%. Inflation forecast reflects the continued impact of higher international commodity and shipping prices on domestic processed food, services and energy price inflation. With the tightening of monetary policy, BOJ anticipates that headline inflation will return to the target range in the latter part of 2022.

Risks to the Inflation Forecast

Key upside risks:

  • Higher than anticipated pass-through to domestic prices
  • Continued shocks to the supply of agricultural foods
  • Higher than projected inflation expectations
  • Further increases in regulated prices
  • Higher than expected GDP growth

Key downside risk:

  • Strong recovery in agricultural production

Developments in the FX market 

The exchange rate was J$156.79 to US$1 on November 17, 2021, representing a 6.1% yearly point-to-point depreciation, which was similar to the depreciation for the same period last year. The BOJ stated that the exchange rate is fairly valued at its current levels, and the prospects for a stable market are good.

The BOJ also stated that foreign currency flows remain strong with daily FX purchases and sales for the calendar year to date exceeding those of the previous year. For the calendar year ending in October, BOJ sold US$675.4 million to the market. Furthermore, Jamaica’s international reserves, which total US$4.7 billion, remain strong.

Looking forward, over the next two years, BOJ expects the Current Account Deficit (CAD) to range between 1% to 3% of GDP, which reflects expectations for a recovery in tourist arrivals and spending.

The BOJ’s net open position (NOP) regime cap is to be restored effective 06 December 2021, the cap will be as follows:

  • $4.5 billion limit for long positions
  • $7.0 billion limit for short positions

The Bank commits to continue reviewing these limits annually and to amending them if deemed necessary.

Real GDP growth for FY2021/22 is to remain as anticipated, that is, projected GDP Growth for FY2021/22 is expected to be in the recovery range if 7.0% to 10.0% while for FY2022/23 projected GDP Growth is expected to be in the range of 2.0% to 4.0%. The key driver of rebound is the Tourism sector and related sectors. However, the real GDP has been adversely impacted by temporary disruption to production at Jamalco as well as adverse weather conditions. Moreover, BOJ anticipates higher growth in the manufacturing, distribution and the transport, storage & communication sectors.

Risks to the Growth Forecast

The key upside risk is a stronger rebound in tourism and related sectors. However, the key downside risk is the efforts to control the spread of the COVID-19 virus could result in a slowdown in travel and disruptions in production and distribution.

BOJ noted that the financial system remains robust and adequately capitalized. The pace of Private Sector Loans & Advances Growth has slowed down but remains positive. However, BOJ highlighted that “Loan quality for the system continues to remain well below our threshold for concern.”

Outlook for the Jamaican economy  

Bank of Jamaica committed to fulfilling its mandate by:

  • Ensuring Growth-enabling Macroeconomic Environment with Inflation within Bank’s Target of 4% to 6%.
  • Reduced monetary accommodation aimed at influencing a return of inflation to our target in the shortest time possible.


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