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The Bank of Jamaica (BOJ) Monetary Policy Committee (MPC) assessed at its meeting from August 16 to 19, 2024 that the current economic environment is conducive to
The Bank further prudently eased the monetary policy stance and agreed to: (i) reduce the policy rate by 25 basis points to 6.75% per annum, effectively
Wednesday, August 21, 2024; (ii) continue to gradually reduce the liquidity absorbed by the Bank of Japan from deposit-taking institutions (DTIs) through open market operations;
(3) Maintaining relative stability in the foreign exchange market.
The Monetary Policy Committee noted that its decision to gradually reduce liquidity absorption, announced on June 28, 2024, has resulted in an injection of $20.5 billion into the system and a 105 basis point cut in the Bank of Japan’s 30-day certificate of deposit rate.
As a result, the Treasury bill rate has fallen by 20 basis points to 72 basis points since July 1, 2024.
The committee concluded that inflation is gradually stabilizing within the central bank’s target range of 4.0% to 6.0%. The annual headline inflation rate for the year to July 2024 is 5.1%, as reported by the Statistical Service of Jamaica (STATIN).
The result was lower than the central bank’s latest forecast, and July marked the fifth consecutive month that inflation fell within the central bank’s target range.
One of the core inflation measures, excluding agricultural products and fuel prices, was 4.5% in July 2024, which means that the underlying inflation rate has gradually declined since the beginning of 2024.
In making its monetary policy decision, the MPC noted that inflation was expected to remain broadly within the central bank’s target range over the next two years, despite the impact of Hurricane Beryl.
It is expected that inflation will temporarily rise from its current level and break through the upper limit of the central bank’s target range in the next three to five months (August to December 2024).
This near-term forecast primarily reflects the negative impact of Hurricane Beryl on agricultural product supplies and related increases in other consumer prices.
It is expected that after this shock, inflation will return to the target range.
Economic conditions generally support low, stable, and predictable inflation going forward.
The MPC noted that domestic fiscal policy would respond to post-hurricane recovery efforts by drawing on existing savings and insurance and reprioritizing spending, as the government has stated.
Against this backdrop, the MPC concluded that fiscal policy would not continue to pose a risk to inflation in the near term.
The lagged effects of the central bank’s relatively tight monetary policy stance also continue to weigh on the economy.
Against this backdrop, domestic demand conditions are easing, reflected in easing of some sectors of the economy and wage pressures.
As a result, net flows of new local currency loans to the private sector in the June 2024 quarter (expressed in constant prices) were lower than flows in the March 2024 quarter and the June 2023 quarter.
Inflation expectations in Jamaica continue to decline and the exchange rate is fairly stable.
Domestic price levels were also supported by rising prices of some international commodities and the continued decline in US inflation.
Risks to the inflation outlook are balanced (meaning inflation is likely to be in line with forecasts).
Rising international shipping costs, a worse-than-expected impact from Hurricane Beryl, and other adverse weather conditions could all contribute to higher inflation.
Factors contributing to lower-than-expected inflation include weaker-than-expected global economic growth, which could reduce domestic demand and imported inflation.
The MPC noted that any future monetary policy decisions to further reduce interest rates would remain dependent on incoming data.
Summaries of the Monetary Policy Committee discussions that influence monetary policy decisions are published on the Bank’s website at https://boj.org.jm/core-functions/monetary-policy/policy-schedule/summary-of-decisions/.
The next policy decision announcement date is September 30, 2024.
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