FINANCE Minister Nigel Clarke is expected to, within the next few weeks, set the Bank of Jamaica (BOJ) a new inflation target to cover the fiscal years 2024/25 to 2026/27 in keeping with the requirement for the target to be reviewed every three years. The inflation target was last set at 4 per cent to 6 per cent in 2021 by the finance minister.

The notice of the review was outlined in the minutes for the February meeting of the central bank’s rate setting monetary policy committee (MPC). The February minutes said a recommendation for the inflation target for this fiscal year that started on April 1, and for the following two fiscal years to the end of March 31, 2027, will be shared with the MPC for its feedback. In the minutes for the MPC’s March meeting, it was then noted that “the revised proposal for the inflation target for FY2024/25 to FY2026/27, members agreed to reviewing and approving the updated draft via round-robin.”

It is understood that Richard Byles, governor of the Bank of Jamaica and chairman of the MPC, has already submitted a letter to the finance minister with a recommendation for the inflation target.

Both Minister Clarke and BOJ officials have been tight-lipped on what inflation target was proposed by the central bank to the finance minister, but it is highly unlikely that the 4 per cent to 6 per cent target will be changed.

“In setting the inflation target over the medium term, it would be proper to consider how well the central bank has been able to achieve that target outside of periods dominated by large external shocks,” Clarke told the Jamaica Observer in a Whatsapp response to queries about the revised target.

“It would also be appropriate to consider Jamaica’s growth prospects, Jamaica’s economic structure, inclusive of the degrees of openness of the Jamaican economy, labour market rigidities and the efficiency of monetary transmission. And, of course, the current and likely future conditions of the external environment need to also be borne in mind,” Clarke added.

Wayne Robinson, senior deputy governor of the BOJ, would only walk Sunday Finance through the process.

“[The] target is determined by the minister after consultation with governor. The governor makes a recommendation to the minister, subsequent to advice from MPC and BOJ technical staff. The minister in making a determination would also consult with the other economic agencies such as the Planning Institute of Jamaica and his own technical staff at the Ministry of Finance. After a decision is made, the minister would then communicate the decision on the target to the BOJ in writing. The minister then tables the target in the House of Representatives within 14 days of notifying the governor and both the ministry and central bank publishes the target on their websites,” Robinson wrote in Whatsapp responses as well.

Still, the Fiscal Policy Paper published on February 15, 2024 seems to solidify belief that the inflation target will not change.

“Inflation is projected to stabilise at 5 per cent over the medium term,” it outlined while a table outlining the country’s medium-term macroeconomic profile suggests that inflation could average 5.8 per cent this fiscal year and run at around 5 per cent from the 2025/26 to 2027/28 fiscal years.

Jamaica first adopted targeting a certain inflation rate in 2018. The target was set at 5 per cent with a band of 1 per cent plus or minus, which gives the familiar 4 per cent to 6 per cent target that is always reported.

“An inflation target of 5 per cent, which, according to BOJ forecasts, will be naturally attained over the medium term, allows the BOJ some freedom and flexibility ‘today’ to not unduly worry about inflation exceeding the target ‘tomorrow’,” Clarke wrote in a
Gleaner op-ed in 2018 as he argued that if it was set lower, it “would precipitate higher nominal market interest rates, and by extension, higher real interest rates”.