THE Bank of Jamaica (BOJ) kept borrowing rates unchanged Wednesday despite mounting worries over inflation, and it showed little sign that it is contemplating cutting them any time soon — unlike the US Federal Reserve.

The central bank left its main interest rate at a 12-year high of 7 per cent, where it has stood since November 2022 following the end of a year of hikes that targeted a surge in inflation, first stoked by supply chain issues during the coronavirus pandemic and then Russia’s invasion of Ukraine, which pushed up food and energy costs.

All five members of the central bank’s monetary policy committee (MPC) voted for holding rates again for the ninth-consecutive meeting pointing to core inflation — that is price increases outside of that for food and fuel which tend to volatile — “being contained” at 5.6 per cent which bodes well for the longer-term inflation outlook. That is generally in line with the average of the past three months and lower than the 8.4 per cent recorded at April 2022. Central banks focus on core inflation when setting interest rates rather than just the headline rate.

But the headline rate, which was 6.3 per cent in November, is also being keenly watched. While the BOJ said the drivers of high inflation over recent months are waning as international commodity prices and shipping costs continue to decline, other things such as the increase in public passenger vehicle (PPV) fares and high domestic agricultural prices “marks the onset of temporary fluctuations in inflation outside the target band”. The BOJ is mandated to maintain inflation at a rate of between 4 per cent and 6 per cent, and largely realised that in the months of September and October.

Still, while the interest rate increases have helped in the battle against inflation, it has squeezed consumer spending, primarily through higher mortgage rates. Financial institutions are also again hiking rates on loans. There are growing worries that rates will stay high for too long, unnecessarily damaging the economy.

Yet, there are indications that the lowering of the central bank policy rate will not come soon enough. That as the BOJ indicates that inflation for much of the period between the December 2023 and March 2024 quarters is expected to rise above its mandated target again, primarily due to the continued impact of the increases in selected PPV fares.

“Without the effects of the PPV fare increase, it is estimated that annual headline inflation would have averaged 5.9 per cent during this period,” the BOJ said in notes accompanying its decision.

But the increase in select PPV fares is not the only worry the central bank has. It said “sharper-than-anticipated increases in domestic agricultural price inflation over the near term, and higher-than-projected future wage adjustments in the context of the tight domestic labour market” are concerning its MPC. And like in all its releases, it said that any decision on changing its stance on the policy rate will depend on incoming data. For now it said it will maintain heightened surveillance of the risks and core inflation and “is prepared to take the necessary actions, including further tightening of monetary policy, if the emerging upside risks to inflation highlighted above materialise.”

As always though, the actions of the US Fed will also be taken into account when setting the policy rate in the future. The US Fed already has signalled that it expects to make three interest rate cuts next year after it kept rates on hold earlier this month. The European Central Bank, which sets policy for the 20 European Union countries using the euro currency, also left rates unchanged but indicated that it would stay the course for a while.

The date of the next policy decision announcement in Jamaica is February 20, 2024.