THE Bank of Jamaica (BOJ) on Friday kept its key policy rate at 7 per cent for the fifth-straight meeting of its rate-setting monetary policy committee (MPC), as expected, but warned that inflation — which at 5.8 per cent in April is now in the 4 per cent to 6 per cent target range for the first time since July 2021 — is not expected to keep in the range over the near term.

“There are likely to be temporary upticks” above the target range over the next six months, the central bank said in notes accompanying its rate decision.

Still, its major worry will be core inflation. The measure which strips away the impact of food and fuel prices on the inflation rate remains at a stubbornly high 5.7 per cent compared to the full target of 4 per cent to 6 per cent. Given it shows an accurate reading of the true severity of inflation the BOJ will be keenly watching how it moves over the next few months before it decides either to increase rates further or to start reversing them.

“The MPC noted that future monetary policy decisions to maintain inflation within the bank’s target range will depend on the incoming data,” it said in its post-meeting statement.

“The MPC will continue to closely monitor the global and domestic economic environments for potential risks to Jamaica’s inflation rate,” it added.

On the domestic front it will be closely watching how the increases in the minimum wage, cost of communication services and agricultural prices, as well as a pending increase in transport costs, will affect inflation.

On the global front the BOJ’s attention will be tuned chiefly to what the Federal Reserve does when it next meets to decide on US interest rates on June 25 and 26, especially in light of its commitment “to foster relative stability in the foreign exchange market”. The BOJ’s own rate-decision meeting will come after, with the decision set to be announced on June 29.

So far Jerome Powell, the Federal Reserve chairman, has indicated that rate hikes may be paused in June for the first time since the key US rates started rising 14 months ago to fight high inflation. But a pause now would not be enough to cause Jamaica to start moving rates again.

Kwame Brooks, country treasurer for the JMMB Group, said he expects the BOJ to continue holding rates for at least the next six months.

So far the rate rises have not weighed down economic growth, which the BOJ said continues strongly with estimates that growth in the last fiscal year could be as high as 5.5 per cent. The outlook, however, is not rosy as “headwinds to global growth” are expected to sap the strength of the economy if it impacts tourist arrivals while consumer spending could drag it further as inflation takes its toll on disposable income.

It, however, indicated that its rate hike is squeezing the flow of new loans to the private sector, with those loans declining in real terms over the six months to March 2023 by 6.5 per cent.