Policy interest rate maintained at 7% for another month

Durrant Pate/Contributor

Effective April 1, 2023, the Bank of Jamaica (BOJ) has hiked by one per cent the domestic and the foreign currency Cash Reserve Requirements (CRRs) applicable to deposit-taking institutions (DTIs).

Currently, DTIs are required to hold a minimum of 5.0 per cent of their Jamaican dollar denominated prescribed liabilities and 13.0 per cent of their foreign currency-denominated prescribed liabilities, as cash reserves at the BOJ, Jamaica’s Central Bank. The domestic currency CRR had been reduced progressively from 12.0 per cent at the start of 2019 to 5.0 per cent in the context of an extended period of low and stable inflation.

The Bank had also maintained a constant differential between the domestic currency CRR and the foreign currency CRR over much of the period. However, with this one per cent adjustment, the domestic currency CRR will be increased to 6.0 per cent and the foreign currency CRR will move to 14.0 per cent.

“This decision represents a part of the BOJ’s efforts aimed at underpinning the return of inflation to the target range of 4.0 to 6.0 per cent,” the central bank reported in a news release last evening. The decision to increase the CRR was taken by the BOJ’s Monetary Policy Committee (MPC), which unanimously decided on the increase at its meeting on February 16 and 17.

Benchmark interest rate maintained

The MPC also decided to maintain its policy interest rate at 7.0 per cent, which is the rate offered to DTIs on overnight placements with BOJ and continue to maintain relative stability in the foreign exchange market. According to the BOJ, “the decisions were informed by the MPC’s view that while incoming data were generally favourable for the inflation outlook, risks to inflation had become elevated”.

Jamaica’s inflation rate of 8.1 per cent at January 2023 was below the rate of 9.4 per cent at December 2022. Core inflation (which excludes food and fuel prices from the CPI) also decelerated to 7.1 per cent at January 2023 from 8.5 per cent at December 2022.

In the context of local and global, the MPC “concluded that to further underpin inflation returning to the target range and to underwrite continued stability in the foreign exchange market, the additional precautionary liquidity control measure of increasing the CRR was required. In terms of the macroeconomic outlook, the Jamaican economy continues to grow strongly.”

Gross domestic product (GDP) for fiscal year 2022/23 is now projected in the range 4.0 per cent to 5.5 per cent, exceeding the upper limit of the range previously anticipated by the BOJ.