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Jamaica holds rate but signals hike in September

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     Jamaica’s central bank left its key interest rate steady but said it will consider tightening its monetary policy stance next month and will launch measures to rein in inflation expectations and contain the expansion of liquidity in the financial system.
     The Bank of Jamaica (BOJ) left its policy interest rate at 0.50 percent, unchanged since it was cut to the current level in August 2019 as a decade-long easing cycle ended.
     Beginning in August 2011 Jamaica’s central bank began cutting its rate from 6.75 percent as inflation eased from double digits to eventually settle in the central bank’s 4.0 to 6.0 percent target range. 
     During this decade the rate was cut 19 times and by a total of 6.25 percentage points.
     With its main interest rate already low, the BOJ was one of only a handful of central banks not to have slashed interest rates last year in response to the COVID-19 pandemic, partly because inflation remained stubbornly high compared with most other countries.
      The inflation rate remained volatile through the pandemic and rose to 5.3 percent in July from 4.3 percent in June and the bank now expects inflation to average 5.5-6.5 percent over the next two years before declining to 5.0 percent.
     ”The decision were based on the MPC’s assessment that, while inflation is likely to breach the upper bound of the Bank’s target range over the next year (starting from as early as the September 2021 quarter), inflation will gradually decelerate thereafter as the transitory effects of the pandemic fade,” the bank said.
      The Jamaican dollar has also been on a steady decline since last year, keeping up the pressure on import prices, and was trading at 154.3 to the U.S. dollar today, down 7.5 percent this year.
     The BOJ said it would seek to ensure that changes in the exchange rate of the Jamaican dollar did not threaten its inflation target even if it doesn’t target a specific level of the exchange rate.
     ”The Bank also decided to consider commencing a tightening of monetary policy at the next meeting of the Bank’s Monetary Policy Committee (the Committee/MPC) in September 2021 and to immediately implement other measures aimed at moderating inflation expectations, including the containment of Jamaican dollar liquidity expansion,” BOJ said., adding the MPC’s decision was unanimous.
     The MPC’s next scheduled meeting is on Sept. 30.
     With the pandemic hitting the global tourism industry hard, Jamaica’s economy has suffered and contracted around 10 percent last year.
      In the first quarter of this year, the economy still shrank 6.7 percent year-on-year but for the 2021/22 financial year, BOJ forecast an expansion of 7.0-10.0 percent, with growth then easing to 2.0-4.0 percent in 2022/23.
      By the end of 2022, the economy is expected to return to pre-pandemic levels.
      
      The Bank of Jamaica issued the following statement:
BANK OF JAMAICA SIGNALS TIGHTENING IN MONETARY POLICY

Bank of Jamaica (BOJ) announces its decision to hold the policy interest rate (the rate offered to deposit-taking institutions on overnight placements with BOJ) unchanged at 0.50 per cent per annum. The Bank also decided to consider commencing a tightening of monetary policy at the next meeting of the Bank’s Monetary Policy Committee (the Committee/MPC) in September 2021 and to immediately implement other measures aimed at moderating inflation expectations, including the containment of Jamaican dollar liquidity expansion. While the Bank does not target any specific level of the exchange rate, Bank of Jamaica will also seek to ensure that movements in the exchange rate do not threaten the inflation target.

Monetary policy decisions taken by Bank of Jamaica are aimed at ensuring that the annual increase in the prices of consumer goods and services (i.e. inflation) remains within the Bank’s inflation target of 4.0 per cent to 6.0 per cent.

These decisions were made by a unanimous vote by the MPC. The decisions were based on the MPC’s assessment that, while inflation is likely to breach the upper bound of the Bank’s target range over the next year (starting from as early as the September 2021 quarter), inflation will gradually decelerate thereafter as the transitory effects of the pandemic fade. Conditional on the gradual tightening of monetary accommodation, inflation is projected to remain at 5.0 per cent over the medium term.

A summary of the discussions influencing today’s monetary policy decision has been published on the Bank’s website and will be discussed at Bank of Jamaica’s monetary policy press briefing, scheduled for tomorrow, 20 August 2021.

The next policy decision announcement date is 30 September 2021.”

     www.CentralBankNews.info



Source: http://www.centralbanknews.info/2021/08/jamaica-holds-rate-but-signals-hike-in.html



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