The Bank of Jamaica (BOJ) on Tuesday in its latest monetary policy decision, announced that it has decided to hold the policy interest rate (the rate offered on overnight balances at Bank of Jamaica) unchanged at 0.50 per cent per annum.

In a release, it was noted that the decision to hold the policy rate unchanged is based on the bank’s current assessment that monetary conditions are generally appropriate to support the achievement of the inflation target of 4.0 per cent to 6.0 per cent over the ensuing four to eight quarters.

The bank, however, said it will continue to closely monitor the impact of the significant monetary loosening on credit expansion, and consequently, on investment and economic growth.

“However, should the downside risks to inflation materialise, the bank stands ready to implement additional measures to meet the inflation target”, the release stated.

Annual inflation at August 2019, as reported by the Statistical Institute of Jamaica, was 4.1 per cent, down from 4.3 per cent at July 2019 but higher than the 3.9 per cent recorded at August 2018.

The August 2019 outturn is in line with BOJ’s forecast and represents the fourth month in a row that annual inflation fell within the bank’s target of 4.0 per cent to 6.0 per cent, albeit below the midpoint of 5.0 per cent. Underlying or core inflation, however, remained low at 2.4 per cent.

With its assessment in August 2019, the bank’s forecast anticipated that inflation would decelerate to 3.7 per cent at September 2019, before accelerating towards the middle of the target in the December 2019 quarter, given expectations for higher food prices in the context of hot, dry weather conditions.

Over the March 2020 to June 2021 quarters, inflation is projected to remain below the midpoint of the bank’s target, mainly reflecting the impact of lower energy prices and low inflation among Jamaica’s main trading partners.

The bank’s policy action to reduce the policy rate by 25 bps to 0.50 per cent in August 2019 was aimed at mitigating the risk that inflation would fall below the target at various points over the next eight quarters.

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At its assessment in August 2019, the BOJ forecast anticipated that over the next eight quarters the Jamaican economy is likely to continue to reflect some slack (that is, projected gross domestic product (GDP) growth being lower than the bank’s estimate of GDP growth).

The imminent temporary closure of the Alpart alumina plant will result in a fall in production in the mining sector and GDP growth over the next eight quarters. Non-mining GDP is however likely to continue to reflect stable growth.

“Other macroeconomic indicators continue to be positive. Foreign reserves remain above levels deemed to be adequate, market interest rates remain low, the current account of the balance of payments remains sustainable, labour market conditions are improving and the fiscal performance continues to be strong”, the release closed in saying.

­— Kellaray Miles