Central Bank Braces for Inflation Surge, Maintains Policy Rate
The Bank of Jamaica’s Monetary Policy Committee has opted to hold the policy rate on overnight placements by deposit-taking institutions steady at 5.75 per cent per annum.
Details of the decision were shared at the Quarterly Monetary Policy Report press conference last week at the central bank’s downtown Kingston auditorium.
According to Governor Richard Byles, the unanimous vote to maintain the rate was influenced by four primary considerations currently shaping the economic outlook.
Projections from the central bank indicate that annual headline inflation, which stood at 4.4 per cent in November, is expected to climb sharply in the months ahead and move above the Bank’s four to six per cent target range by early 2026.
The inflation forecast, the Governor explained, largely reflects the fallout from Hurricane Melissa, which severely affected major food-producing parishes and disrupted key supply chains, particularly in the energy and agricultural sectors.
“These supply-side shocks lie outside the direct influence of monetary policy and, therefore, cannot be addressed through interest rate actions but will have a knock-on effect on other prices,” Mr. Byles said.
Beyond headline inflation, the central bank anticipates that core inflation will also trend upwards over the next year, with expectations of breaching the target range in early 2026.
“This will reflect another wave of price increases for other goods and services, such as home repairs, meals sold at restaurants, and personal-care items. The Central Bank is, therefore, positioning monetary policy to minimise such second-round effects and to constrain the inflation expectations of businesses and consumers,” the Governor stated.
Fiscal developments were also central to the MPC’s assessment, particularly the Government’s decision to suspend the Fiscal Rules for an initial one-year period to accommodate increased spending on recovery and relief.
As outlined by Mr. Byles, the relaxation of the fiscal framework is expected to result in wider fiscal deficits over the next three years.
“While additional government spending is absolutely essential to rebuild the foundations of the economy following such a catastrophic event as Hurricane Melissa, the Bank has to position its policy to temper any possible inflationary impulses from this increased spending,” he said.
Inflationary risks were further weighed by the MPC, with the Bank highlighting a higher probability that inflation could surpass current projections.
“Higher inflation could result from higher-than-expected demand to support the reconstruction efforts. Inflation expectations could also rise as households and firms anticipate higher prices and adjust their behaviour in ways that make higher inflation self-fulfilling,” the Governor noted.
Additional pressure on prices could emerge, he added, if recovery in the agriculture sector proceeds more slowly than anticipated or if supply chain disruptions persist for longer than expected.
“There could also be long-term damage to specific industries, which could slow the improvement in production and availability of supplies,” Mr. Byles stated.
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