BOJ cuts policy rate to 6.75 per cent

The Bank of Jamaica (BOJ) has reduced its benchmark policy rate by 25 basis points for the first time in almost three years, bringing the rate to 6.75 per cent per annum.

This decision, made during the Monetary Policy Committee's (MPC) August 2024 meetings, reflects an improving inflation outlook and moderated domestic demand conditions. Headline inflation fell to 5.1 per cent in July 2024, remaining within the BOJ's target range of 4.0 per cent to 6.0 per cent for five consecutive months.

Despite the temporary inflationary impact expected from Hurricane Beryl, which disrupted agricultural supplies, the BOJ projects inflation will generally stay within its target range over the next two years.

The MPC's decision also includes continuing the gradual reduction of the BOJ's liquidity absorption, which began in June 2024 and injected $20.5 billion into the financial system.

"While there will be an uptick in headline inflation over the next three to five months resulting from the effects of Hurricane Beryl, this uptick will be temporary," the BOJ stated. 

BOJ benchmark rates stood at 0.5 per cent in 2021 but climbed over time to 7.0 per cent, a fourteen fold rise. This impacted lending and saving rates across the island. 

The BOJ added that the domestic economy shows signs of easing demand, a stable exchange rate, and lowered inflation expectations, supported by declining US inflation and lower international commodity prices.

However, the BOJ cautions that it will closely monitor risks such as fluctuating energy prices and global economic conditions. Future rate cuts will depend on incoming economic data.

- Steven Jackson

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