BOJ Reduces Interest Policy Rate for the First Time in 2 Years

The Bank of Jamaica, BOJ, has reduced its policy rate for the first time in nearly two years.

In its latest Monetary Policy decision, the BOJ has reduced the rate it provides to financial institutions that keep deposits at the central bank, by 25 basis points.

The new rate is 6-point-75-percent per annum, down from 7-percent.

It takes effect today, Wednesday, August 21.

As we hear in this report from Chevon Campbell, the move is in keeping with calls from several stakeholders to cut rates to drive economic growth in the aftermath of Hurricane Beryl.

The last time the Bank of Jamaica’s policy rate was adjusted was 20-months ago – November of 2022.

The central bank has steadily increased its rates since October 2021 in response to rising inflation.

This relatively high interest rate regime has come in for criticism as many fear it has negatively impacted the country’s growth.

The BOJ has now responded positively.

It has reduced the rate it provides to financial institutions that keep deposits at the central bank from 7-percent, down to 6-point-7-5-percent per annum.

That’s a reduction of 25 basis points.

Accompanying its decision on Tuesday, the BOJ says it expects inflation to become more anchored in the Bank’s target range of 4 to 6 percent. 

Point-to-point inflation at the end of July was 5-point-1 percent. 

This represents the fifth consecutive month inflation fell within the central bank’s target range. 

The BOJ noted that, despite the effects of Hurricane Beryl, inflation is projected to largely remain within its target range over the next two years.

Inflation is projected to temporarily rise from its current level and breach the upper end of the Bank’s target range over the next three to five months. 

However, it’s anticipated it will return to the target range after the shock of Hurricane Beryl has passed.

The central bank says current economic conditions generally support low, stable and predictable inflation in the future. 

The BOJ expects the government and domestic fiscal policy will address the post-hurricane recovery efforts by utilising existing savings and insurance and re-prioritising expenditures. 

Meanwhile, the BOJ is hinting at further reductions in interest rates in the future.

It says it will continue the gradual reduction of BOJ’s absorption of liquidity from deposit-taking institutions through open market operations and preserve relative stability in the foreign exchange market. 

It says its actions so far have already resulted in an injection of 20-point-5 billion dollars into the system.

Meanwhile, Chairman of the Economic Programme Oversight Committee, EPOC, Keith Duncan, has welcomed the BOJ’s decision to reduce its policy rate.

Mr. Duncan says the private sector is grateful that the BOJ has moved ahead of the US Federal Reserve, which may move to cut rates starting in September.

Keith Duncan, Chairman of EPOC.