BOJ Raises Policy Rate to 6% as Inflation Hits 7.9%

The Bank of Jamaica (BOJ) says inflation risks remain tilted to the upside over the next eight quarters, with stronger domestic spending, higher agricultural prices and global commodity costs among the factors that could keep pressure on prices.

Businesses have also become more concerned about inflation. Their expectations for price increases 12 months ahead rose to 7.3% in July from 6.7% in June, while the central bank said there were indications of possible wage pressures.

The BOJ said unusually high temperatures and worsening agricultural production conditions could push food prices higher, while stronger-than-expected domestic spending could add further inflationary pressure. Weaker consumer purchasing power could, however, reduce demand.

Global financial conditions have also tightened more quickly than previously projected.

The US Federal Reserve raised its federal funds target range by 25 basis points to 3.75% to 4% in September, citing higher inflation and uncertainty in the United States. Other major central banks have also increased interest rates.

Against that backdrop, the BOJ has raised its policy interest rate by 50 basis points to 6%.

The Monetary Policy Committee unanimously approved the increase at meetings held on September 24 and 25, with the new rate taking effect on September 29.

The central bank said the increase was needed to limit second-round effects and prevent elevated near-term inflation from becoming embedded in inflation expectations.

Headline inflation reached 7.9% in August, up from 7.5% in July and 1.2% in August 2025, according to the Statistical Institute of Jamaica.

It was the third consecutive month in which inflation exceeded the upper end of the BOJ’s target range of 4% to 6%.

The August increase was driven mainly by drought conditions that affected agricultural production and pushed up prices, particularly for vegetables. Higher international commodity prices also contributed to increased petrol costs.

Core inflation, which excludes agricultural food and fuel prices, remained at 5.2% in August, unchanged from July but above the 4.2% recorded a year earlier.

The BOJ said the increase in core inflation over the past year reflects emerging, though still limited, second-round effects on processed food and selected services.

Those pressures have been linked to higher domestic agricultural prices and increased costs for imported commodities, particularly energy and transportation.

The central bank expects headline inflation to continue rising in the near term before returning to its 4% to 6% target range by mid-2027.

Core inflation is also expected to remain above the target range during that period, particularly if geopolitical tensions persist under the BOJ’s severe scenario.

The outlook also takes into account higher international commodity prices, increased domestic energy and transportation costs and agricultural price pressures associated with El Niño and reduced crop yields.

The BOJ said spending related to the Government’s recovery efforts and the normalisation of economic activity in sectors affected by Hurricane Melissa could also add to domestic demand.

International developments remain another source of pressure, with the BOJ pointing to the conflicts in the Middle East and Ukraine as contributing to persistently high commodity prices.

Despite those external pressures, the central bank said Jamaica’s international reserves remain healthy and continue to support the availability of foreign exchange. It also expects the exchange rate to remain relatively stable.

The latest increase comes after the MPC left the policy rate unchanged in August. The BOJ said that decision was appropriate based on the risks assessed at the time, but that conditions have since deteriorated.

Remember to share this article on Facebook and other Social Media Platforms. To submit your own articles or to advertise with us please send us an EMAIL at: [email protected]