Bank of Jamaica (BOJ) announced on Thursday it would maintain its benchmark interest rate at 6 per cent, striking a cautious balance between supporting economic recovery and guarding against inflationary risks posed by global uncertainties and domestic climate vulnerabilities.

The decision, unanimously agreed on by the central bank’s monetary policy committee (MPC), marks a shift from the central bank’s four consecutive rate cuts in late 2024. Rates were trimmed by 100 basis points between August and December 2024. This follows inflation cooling from 7.4 per cent in January 2024 to 4.7 per cent in January 2025.

“The current policy rate continues to be appropriate to support inflation remaining within the target range and maintain relative stability in the foreign exchange market,” the MPC said in its statement, emphasising that risks to the inflation outlook remain “skewed to the upside”.

The BOJ attributed this sustained disinflation to lower price increases in regulated sectors — particularly public transportation — and stabilising public expectations of future price rises. Core inflation, which excludes volatile food and energy costs, held steady at 4 per cent, marking 19 consecutive months within the central bank’s 4-6 per cent target band. The central bank said it expects inflation to remain in the 4 per cent to 6 per cent range at least for the next two years, though it pointed out that various developments could push price increases higher.

Still, the MPC noted that inflation expectations among businesses have continued trending downward. Business surveys in December 2024 showed 12-month-ahead inflation expectations falling to 7.2 per cent from 8.3 per cent previously, signalling growing confidence in the BOJ’s policy framework.

Jamaica’s economy is forecast to contract by an estimated 1.5 to 0.5 per cent in the 2024/25 fiscal year, largely due to Hurricane Beryl’s devastation of critical infrastructure and agricultural output in late 2024. However, the MPC projected a rebound to 1.0-3.0 per cent growth in 2025/26, driven by recoveries in tourism, utilities, and farming.

Yet, the BOJ has is eyes on risks to that forecast, especially from changing policies in the United States.

“Uncertainty related to potential economic policy changes in the US could have adverse implications for inflows through the current account of Jamaica’s balance of payments, as well as inflation expectations,” the BOJ noted.

The possibility of universal tariffs or specific tariffs targeting countries like China could disrupt global trade dynamics, indirectly impacting Jamaica by reducing demand for its exports or increasing import costs.

The BOJ also pointed out that worse-than-anticipated weather conditions in Jamaica could also put upward pressure on inflation.

“On the downside, lower inflation could result from weaker-than-projected demand,” it said.

It also highlighted rising global risks, particularly the US Federal Reserve’s pause in monetary easing. While the Fed held rates at 4.25-4.50 per cent in January 2025, yields on long-term US Treasury bonds climbed from 3.7 per cent to 4.4 per cent between September and December 2024, raising concerns about capital flight from emerging markets like Jamaica.

In the meantime, commodity markets offered mixed signals: global grain prices fell 15.1 per cent year-on-year in late 2024, while oil prices dipped modestly. However, soaring shipping costs and lingering supply chain disruptions tempered gains. The BOJ forecast annual declines of 5.9 per cent for grains and 0.5 per cent for oil over the near term, assuming no major geopolitical or climate shocks.

Jamaica’s foreign exchange market remained stable, with the dollarisation ratio — a measure of public confidence in the local currency — holding steady. International reserves stayed robust at US$5.5 billion in January, buoyed by a current account surplus, though the MPC pledged continued interventions to curb excessive currency volatility.

Fiscal settings were deemed “neutral” for inflation, with public debt dynamics under control. However, limited government spending flexibility raises reliance on monetary policy to buffer external shocks, the committee noted. Extreme weather emerged as a recurring theme in the BOJ’s risk assessment.

Still, the BOJ reiterated its readiness to tighten policy if inflation risks materialise, emphasising data-dependent decision-making.

“The MPC reaffirmed its commitment to maintaining low and stable inflation and will deploy all the necessary tools to preserve stability. The committee agreed that it would be prepared to adjust the stance of monetary policy if the above-noted risks crystallise and result in an upward deviation from the inflation target.”The central bank will give more details on its action at a press briefing scheduled for Monday, after which it will turn its attention to the MPC’s March 27 meeting, which will incorporate updated GDP figures and global commodity price trends.