Governor of the Bank of Jamaica (BOJ), Richard Byles, has called on Jamaicans to be patient as the Central Bank rides out the storm of inflation, waiting for headwinds to subside.

Responding to a question on how the bank plans to handle calls for overnight interest rates – used to temper inflationary pressures – to be lowered from seven per cent, Byles said that the BOJ cannot be irresponsible and so would prefer if Jamaicans “batten down” until inflation comes within the four–to-six per cent range.

“So we want to see rates come down too. But we want to be certain that inflation is anchored; not floats in and floats out but anchored,” he said during a BOJ’s quarterly monetary policy press briefing on Tuesday (May 21).

“What we don’t want is to come out and lower interest rates and see inflation come out of the corridor. That’s not good for us and that’s not good for inflation. So let’s batten down for a little bit – I am hoping it won’t be for long – and once we see it firmly anchored we can actually bring rates down,” the central bank governor continued.

Inflation, as measured by the Statistical Institute of Jamaica’s (STATIN) Consumer Price Index (CPI), has dipped within the last three consecutive months. However, the rate of inflation has only fallen within the BOJ’s range in the last two months, moving from 5.6 per cent in March to 5.3 per cent in April.

However, Byles noted that achieving inflation targeting will need to be consistent before the BOJ can lower interest rates. In fact, he anticipates that for the current month and the next, the rate at which prices rise will again breach its inflation band.

He added that the Central Bank will be monitoring metrics including business expectations, wage inflation and core inflation to ensure that the Bank attains its target.

Core inflation is the measurement of the change in prices of goods excluding food and fuel. For the month of April, core inflation was 5.7 per cent, which, according to the BOJ, was lower than the outturn in March. 

At the same time, in a survey of business owners on inflation expectation, respondents anticipated that inflation would average around eight per cent over the next 12 months, lower than the 8.3 per cent they projected a month earlier.

While the respondents’ perception of inflation control improved between January and March, they however believed that the Bank of Jamaica would not adjust its overnight interest rate for another three months.

When asked if the BOJ will be using the level of net international reserves and the stability in the exchange right as determinants for lowering interest rates, Byles deferred the question to senior deputy governor Dr Wayne Robinson. 

He was firm on the stance that the bank will not adjust overnight interest rates until inflation has returned within its prescriptive range. 

“We want to be assured that inflation is firmly back within the target because…that is our focus, that is our mandate,” Robinson asserted. 

“So monetary policy is always geared towards getting back to four-to-six [per cent] and not just getting back there but that we actually stay there,” he added.

The  Deputy Governor added that the BOJ will continue examining incoming data but due to “uncertainties we have to be very judicious, we have to be very cautious”.

Though Robinson conceded that having healthy reserves and a relatively stable exchange rate help the Central Bank manage imported inflation, he pointed out that monetary policy will always be guided by inflation.

Keith Duncan, chairman of the Economic Programme Oversight Committee (EPOC), just weeks ago recommended that the BOJ reduce its interest rates in light of inflation falling back within the bank’s range and the record level of net international reserves. 

“The BOJ can be proactive and look at reducing interest rates, armed with the healthy reserves [with which] exchange rate stability can be maintained because we do have healthy reserves so you can maintain exchange rate stability. Plus inflation is trending into range,” he stated during the last EPOC press briefing.

While the Central Bank has used interest rates as a tool to curtail high inflation, it has also used another measure to achieve same. 

In February 2023, it announced a one percentage point increase in the domestic and foreign currency cash reserve requirements (CRRs) applicable to deposit-taking institutions (DTIs), effective last April.