The Bank of Jamaica (BOJ) has indicated that it will begin a gradual easing of its monetary policy stance, despite keeping the policy interest rate at 7 per cent.

The announcement that was made after the meeting of the bank’s Monetary Policy Committee (MPC) this week outlined plans for a two-pronged approach.

“The first step involves gradually reducing BOJ’s absorption of liquidity from DTIs through open market operations, thereby facilitating: (a) the channelling of additional credit to the productive sector; and (b) gradual rate reductions in the money market,” the Central Bank stated, outlining the MPC’s decision.

While the MPC said that its inflation outlook is balanced – the rate of price increases is falling in line with its projections – it remains wary of the upside risks that could trigger sharp price increases in the future such as international shipping costs and worsening weather conditions occasioned by the La Niña phenomenon.

The committee’s decisions, in the future, will continue to be based on incoming data from the Statistical Institute of Jamaica (STATIN).

“If they indicate a sustained anchoring of inflation within the target range, [it] could lead to further easing of monetary policy,” the MPC stated.

The Consumer Price Index for May 2024, which was published by STATIN on June 17, showed that the prices of goods and services commonly consumed by Jamaicans increased by an average of 5.2 per cent over the last 12 months. Core inflation, which excludes the price of food and fuel, was 5.6 per cent, marginally lower than the month before.

At one percentage point lower than in April, inflation for the third consecutive month fell within the BOJ’s target range between 4 per cent and six per cent. More importantly, the outturn was lower than what the central bank had projected.

“The reduction in inflation has been largely due to some containment in domestic demand, a stable exchange rate and a decline in imported inflation. Additionally, inflation expectations have stabilised, and anecdotal information suggests that wage pressures have moderated,” the committee reasoned.

Additionally, the MPC points out that the country’s inflow of foreign exchange has resulted in “relative stability in the exchange rate”. 

As such, the BOJ will revise its projections on inflation, anticipating that the CPI will fall within the target range over the next two years, with some exceptions in 2025.