Jamaica holds rate, inflation seen lower but in range

     Jamaica’s central bank left its monetary policy rate steady at 0.50 percent as inflation is still expected to remain within the bank’s target range although it will be lower than it forecast in February.
     The Bank of Jamaica (BOJ), which has maintained its rate since August 2019, said inflation over the next eight quarters to the end of December 2021 is seen below the 4.7 percent that was forecast in the February inflation report due to the adverse impact of COVID-19 on the country’s economy and the measures to contain it.
     BOJ did not reveal its updated inflation forecast but added details about this decision will be discussed on May 20 at BOJ’s monetary policy press briefing.
     BOJ’s inflation is target is 4.0 to 6.0 percent and inflation in March eased to 4.8 percent from 6.0 percent in February.
     Last week BOJ made an additional US$65 million in foreign exchange available to banks by lowering the cash reserve requirements on foreign currency deposits by 200 basis points to 13.0 percent.
     BOJ also lowered the reserve ratio on domestic currency deposits by 200 basis points to 5.00 percent, releasing around 14 billion Jamaican dollars.
     ”The reduction in the domestic currency cash reserve requirement completes the series of reductions that the Bank initiated in 2019 to take the statutory minimum of five per cent (%%) of prescribed liability,” BOJ said on May 15, adding the cut to the reserve ratio took effect May 15.
     The foreign cash reserve was last adjusted in April 2017 when it was raised 100 basis points.
     On the same day the cash reserve ratio was lowered, the International Monetary Fund’s (IMF) executive board approved a disbursement of some US$520 million under its rapid financing instrument to help the country meet its balance of payments needs.
     The coronavirus pandemic is expected to hit Jamaica’s main foreign currency earners of tourism, remittances and alumina exports, and interrupt the country’s strong downward trend in debt.
      In April Fitch Ratings revised it outlook for Jamaica to stable from positive, forecasting Jamaica’s economy will contract 4 percent this year and then grow 2 percent in 2021.
     Fitch projects tourism will decline by 20 percent this year although it cautioned this could be steeper if an easing in the virus does not materialize in the key northern hemisphere winter. In 2018 tourism hard-currency revenues represented 20 percent of Jamaica’s gross domestic product.
     In July 2017 BOJ adopted a new monetary policy framework that designated the overnight deposit rate as its policy rate. Between July 2017 and August 2019 BOJ then lowered its policy rate 12 times and by a total of 325 basis points.
     Jamaica’s dollar has trended downward in the last 12 months and was trading around 143 to the U.S. dollar today, down almost 7 percent this year.

   

     The Bank of Jamaica issued the following statement: