Bank of Jamaica lowers interest rate to 6.5%

The Bank of Jamaica (BOJ) has reduced interest rates by 25 basis points (bps) to 6.50 percent per annum, a decision announced by the central bank on Monday, citing an improved inflation outlook.

According to the Statistical Institute of Jamaica (STATIN), annual headline inflation for August 2024 stood at 6.5 percent, an increase from 5.1 percent in July 2024. This figure aligns with the latest forecast but exceeds the bank’s target range of 4 to 6 percent.

Despite the rise in headline inflation, core inflation – which excludes prices of agricultural food products and fuel—was recorded at 4.3 percent in August 2024, indicating a continuing decline in underlying inflation since the beginning of the year, the BOJ stated in a press release.

The BOJ indicated that its forecast for inflation over the next eight quarters may be revised downward, suggesting that headline inflation could return to the target range sooner than previously expected. This shift is largely attributed to the anticipated lower impact of Hurricane Beryl on agricultural supply.

Additionally, key factors influencing headline inflation are showing signs of moderation, particularly in light of declining international commodity prices. The lasting effects of the bank’s monetary policy over the past three years are also expected to suppress domestic demand and wage pressures. Furthermore, the net flow of new domestic currency loans to the private sector (adjusted for constant prices) has continued to decrease as of July 2024.

The BOJ noted a consistent decline in inflation expectations in Jamaica, coupled with a relatively stable exchange rate.

As such, the bank anticipates that inflation will settle within its target range throughout the forecast period, barring the next two to three months. However, there remains a risk of rising inflation due to the current active hurricane season, the central bank cautioned.