The Bank of Jamaica (BOJ) has signalled its intention to ease monetary policy as inflation continues to trend downwards.
Simultaneously, the central bank is projecting that inflation will likely be revised downward and will generally remain within the target range of four to six per cent over the next two years, except for a few months in 2025.
However, the Bank’s Monetary Policy Committee ((MPC) has said that it will continue to maintain the policy rate at seven per cent per annum at this time, and to continue its proactive stance of preserving relative stability in the foreign exchange market.
It has held that rate since November 2022.
The BOJ stated on Friday that over the past three years, it tightened monetary policy through: (i) raising the policy rate by 650 basis points to seven percent, leading to small increases in loan rates and moderate increases in deposit rates; (ii) tightening Jamaica dollar liquidity in the money market via open market operations, resulting in higher private money market interest rates; and (iii) using foreign reserves to maintain relative stability in the foreign exchange market.
It sought to explain that its policy actions were designed to reduce inflation by constraining domestic aggregate demand and minimising the impact of imported inflation as a result of stability in the foreign exchange market.
“Incoming data now suggest that there has been significant success in the fight against high and unpredictable inflation in Jamaica,” the BOJ stated.
It pointed to the Statistical Institute of Jamaica, which on June 17 reported that annual headline inflation at May 2024 was 5.2 per cent.
“This outturn represented the third consecutive month in which inflation fell within the Bank’s target range and the fourth consecutive month of decline in headline inflation. The outturn was also significantly lower than the Bank’s most recent forecast,” said the BOJ.
It added that core inflation, which excludes all food types as well as fuel prices (including transport prices), from the Consumer Price Index (CPI)) was 5.6 per cent at May 2024, marginally lower than the previous month.
“Another measure of core inflation that excludes the prices of agricultural food products and fuel prices was 5.1 per cent at May 2024, also reflecting a downward trend closer to the mid-point of the Bank’s target range”.
The central bank also highlighted that the reduction in inflation has been largely due to some containment in domestic demand, a stable exchange rate and a decline in imported inflation.
“Additionally, inflation expectations have stabilised, and anecdotal information suggests that wage pressures have moderated”.
The BOJ said its MPC also pointed to the surplus on the current account of the balance of payments for the December 2023 quarter, as well as the “positive outlook for the balance of payments over the next year”.
“This surplus underpins the relatively strong flows in the foreign exchange market and the relative stability in the exchange rate.
“In this context, projected inflation will likely be revised downward and generally remain within the target range over the next two years...The projected breaches of the upper limit of the inflation target range in 2025 largely reflect an acceleration in agricultural price inflation, following sharp declines in March 2024,” the Bank said.
It added that “Against the background of the improved inflation outlook, BOJ’s Monetary Policy Committee at its meetings on June 26 and 27, 2024, unanimously agreed to start a gradual easing of its monetary policy stance.
The date of the next policy decision announcement is August 20, 2024.