Bank of Jamaica continues tightening cycle

The Bank of Jamaica’s monetary policy committee raised its policy rate by 50 basis points to 5.5%, the seventh consecutive increase since September.

The MPC approved the hike unanimously.

In its press release, the MPC noted that inflation, though still well above the target range, had declined somewhat between April and May, from 11.8% to 10.9%. The committee added that the rate hikes were beginning to pass through into the commercial banking sector, and that the exchange rate had become steadier.

However, in a separate discussion document, the committee said the drop in inflation was mainly due to an improved supply of agricultural supplies and government subsidies for electricity bills. The MPC observed that core inflation had risen slightly, to 9.7%, and that businesses’ inflation expectations had also increased.

The central bank has an inflation target range of 4–6%. The committee does not expect to reach that target soon, saying in the discussion paper that it expects inflation will average 8–9% over the next two years”.

In its press release, the committee said it wanted commodity prices and core inflation to decline “before moderating the tight monetary policy stance”. It expects these indicators to fall in the last two quarters of the year.

The Jamaican central bank transferred the power to make monetary policy decisions from the governor to a monetary policy committee under a new central bank law, adopted in late 2020. The five-member committee includes the governor, two deputy governors and two external members appointed by the government.

The Bank of Jamaica’s next monetary policy decision is due on August 18.