THE Bank of Jamaica (BOJ) cut interest rates from a 13-year high Tuesday in a unanimous vote by its policymakers who are convinced now that inflation is sufficiently under control and will continue to be so even with an expected uptick in price rises over the next couple of months due to Hurricane Beryl’s impact on the agricultural sector.

Governor Richard Byles led the vote in the five-member monetary policy committee (MPC) meeting to cut the central bank’s policy rate by 0.25 per cent to 6.75 per cent and promised that future rate actions will continue to depend on incoming data.

It was the first rate cut implemented by the BOJ since it fell to 0.5 per cent in August 2019 and came as inflation in July was recorded at 5.1 per cent, the fifth-consecutive month in which inflation fell within the BOJ’s target range of 4 per cent to 6 per cent. “Core inflation that excludes the prices of agricultural food products and fuel was 4.5 per cent at July 2024, which represented a progressive lowering of underlying inflation since the start of 2024,” the central bank noted.

“We are grateful that the BOJ has moved ahead of the US Fed, which we may see implementing a number of rate cuts going forward beginning in September,” Keith Duncan, chairman of the Economic Programme Oversight Committee and CEO of JMMB Group said to the Jamaica Observer in preliminary responses to the rate cut, calling it “welcomed”.

He pressed his fellow colleagues in the financial sector to pass on the cuts to consumers, saying, “We are hopeful that interest rates to businesses and consumers will see a gradual reduction in line with interest rate reductions going forward.”

Don Wehby, CEO of GraceKennedy Company Limited, a food and finance conglomerate, also called the rate cut “a very welcome move”.

“I think this will be a positive for the Jamaican economy. Investment and growth markets will increase,” he said, while warning, “This has to be carefully managed against the inflation targets.”

But Ramon Small-Ferguson, CEO of Barita Investments had no such concern.

“The BOJ has created a lot of capacity to cut by virtue of the series of interest rate hikes that we saw [between 2021 and 2022]. We moved from 0.5 per cent to 7 per cent in a short space of time. So if we take a small step back, I don’t think that will put the central bank at tremendous risk of making a policy mistake, even if we see a rise in inflation on the back of Beryl, because we’ll know that rising inflation is transitory,” Small-Ferguson explained.

Over at the Jamaica Stock Exchange, there is also relief.

“This will certainly assist in breathing some life into what we know is an extended bear market,” Marlene Street-Forrest, managing director of the JSE, told the Business Observer.

“It is a start in reversing negative investor sentiment and will assist in business recovery for many of the companies that are currently affected by the high interest rate policy. This is a positive signal. I believe this will drive company’s valuation, increase investors’ confidence, decrease borrowing cost, and no doubt increase interest in companies seeking equity capital, and we hope to see improvement in market activities. All told it is a positive move for market, market players, and rebounding of real economic activities and growth,” Street-Forrest added.

But amidst the praise, criticism that the 0.25 per cent rate cut took too long to come and was too small.

“I believe the BOJ took too long to act, and the quarter-per cent cut is too modest unless they plan to continue reducing rates by at least a quarter per cent every month for the rest of the year,” John Mahfood, past president of the Jamaica Manufacturers and Exporters Association (JMEA) and CEO of Jamaican Teas Limited, explained.

He said the economy has been slowing for some time, evidenced by a noticeable slowdown in construction activities.

“When construction slows, it takes a long time for the sector to regain momentum,” he added.

He, however, reasoned that there is a growing need to jump-start the economy given the rising cost of goods, driven by inflation which has eroded consumers’ purchasing power.

“I’m glad the BOJ finally took action rather than waiting for the US Federal Reserve to make the first move,” Mahfood said. “This is a positive step, and I hope they maintain this momentum.”

But rate cut aside, the BOJ said it will also continue gradually reducing how much liquidity it is absorbing from deposit-taking institutions (DTIs) through open market operations. Since it has announced it will cut the amount of funds it takes from the markets, an extra $20.5 billion has entered the system, causing a 1.05 per cent cut in rates on BOJ’s 30-day certificates of deposit. As a consequence, treasury bill rates fell by between 0.20 per cent and 0.72 per cent over the period July 1, 2024 to date.

The central bank said going forward inflation is projected to temporarily rise from its current level and breach the upper end of the bank’s target range over the next three to five months (August to December 2024).

“This near-term forecast largely reflects the negative impact of Hurricane Beryl on agricultural supplies and related increases in other consumer prices. Following this shock, inflation is projected to return to the target range,” it said.

It also noted that wage pressures are easing and loans to the private sector have been declining.

The BOJ next meets to consider interest rates at the end of September. Before that, in mid-September, the Federal Reserve, the US central bank, is expected to cut interest rates in that country as well.