KINGSTON, Jamaica — The Bank of Jamaica (BOJ) has indicated that further policy interest rate increases are being paused while the institution scrutinises the extent of the pass-through effect to deposit and loan rates.

Governor, Richard Byles, made the announcement in the wake of the BOJ Monetary Policy Committee’s (MPC) decision to increase the rate by a further 50 basis points (bps) to seven per cent, effective Monday, November 21.

Byles, who was speaking during the central bank’s semi-virtual quarterly media briefing on Friday, said the decision on the increase was based on, among other factors, domestic inflation rising to 9.9 per cent in October, according to the Statistical Institute of Jamaica (STATIN).

“This was higher than the inflation rate of 9.3 per cent, in September 2022. While some of the key drivers of headline inflation, such as grains and shipping prices, continue to trend downwards on the world markets, we are not yet seeing the full pass-through to domestic food prices. In addition, core inflation, which excludes the impact of fuel and food prices, at October, remained persistently high at nine per cent,” he added.

Byles said the bank also notes that monetary tightening among Jamaica’s main trading partners is continuing at a “rapid pace”.

“On the 2nd of November 2022, the Fed (United States Federal Reserve Board) raised its interest rate target by 75 bps, and signalled further rate increases to come,” he informed.

In a release on Sunday, the governor said this policy stance could cause capital outflows from Jamaica and a faster pace of exchange rate depreciation, “if domestic monetary policy is not correctly aligned.”

The foreign exchange rate for fiscal year 2022/23, to November 11, depreciated by 0.5 per cent, the Central Bank has reported.

This outturn, according to the governor, was significantly slower than the 6.7 per cent recorded over the corresponding period of 2021/22.

Byles pointed out, however, that 12 months into the tightening cycle, and with the policy rate now at seven per cent, “the bank judges that it is appropriate to pause further… increases and watch its pass-through effect.”

“This pause is also conditional on seeing more pass-through of international commodity price reductions to domestic prices, and on the Fed not exceeding their stated rate increase target for 2022,” he told journalists.

Byles said when the MPC meets again next month and in February 2023, they will examine data regarding inflation and other related local and global developments, “to see what happens on the deposit side and on the credit side.”

“So, it’s data that’s going to help us to make that decision [relating to policy interest rate movements]. Whatever the data says, we [will] analyse it and take a decision, based on that,” he stated.

Byles advised that the MPC also decided to continue Jamaican dollar liquidity expansion containment and maintain relative stability in the foreign exchange market.

He indicated that the latest decision on the policy rate has resulted in a cumulative 650 bps increase since October 2021.

“Also, since then, while maintaining a flexible exchange rate, the bank has taken decisive actions in the foreign exchange market, including selling foreign exchange, when necessary,” the governor further informed.

Byles said the Central Bank sold US$396.1 million via its BOJ Foreign Exchange Intervention and Trading Tool (B-FXITT) facility for fiscal year 2022/23, to November 11.

This, he added, was complemented by sales of US$442.7 million to selected public enterprises, including State oil refinery – PETROJAM.