THE Bank of Jamaica (BOJ) held its key interest rate steady on Tuesday, striking a hawkish tone as it prioritised robust economic growth and underlying price pressures over market expectations for an immediate easing cycle.

The Monetary Policy Committee (MPC) unanimously voted to maintain the policy rate at 5.75 per cent, according to a statement from Governor Richard Byles. The decision confounded forecasts from local financial institutions and analysts, who had widely anticipated a cut of at least 25 basis points following a run of low inflation prints.

The central bank’s move underscores a calculated focus on medium-term inflation risks and strong domestic demand, choosing to look past what it termed “temporary” factors that dragged headline inflation well below its target.

Inflation Paradox

Data released for August showed headline inflation at just 1.2 per cent, firmly under the BOJ’s 4 to 6 per cent target band. However, the bank’s detailed summary of deliberations revealed its policy was guided by a more nuanced metric: core inflation, which held at 4.2 per cent.

The MPC’s decision hinges on its deliberate prioritisation of this core figure. In its statement, the committee noted that the low headline rate was driven by temporary supply-side improvements, citing “a sharp rebound in agricultural production” after Hurricane Beryl, the “fading impact of previous public transport fare increases,” and a government-mandated reduction in the General Consumption Tax on electricity.

By stripping out these volatile food and fuel prices, core inflation reveals the persistence of underlying, “sticky” price pressures, particularly in the services sector. This 4.2 per cent rate, now within the target band for a sixth consecutive month, is interpreted by the MPC as a clear signal of entrenched, demand-driven inflation. It reflects an economy where a tight labour market and elevated wage growth are fuelling sustained consumer spending, allowing businesses to pass on higher costs. This dynamic is precisely what the bank’s hawkish pause aims to cool, using restrictive rates to manage domestic demand and anchor inflation expectations.

Underlying Economic Strength

The BOJ’s assertion that the weak headline number is “unrelated to demand conditions” is a cornerstone of its hawkish stance, directly countered by evidence of a robust and accelerating domestic economy.

Recent data confirms this view. The economy is estimated to have expanded between 3 and 4 per cent in the September quarter, continuing a growth trend that began earlier in the year. This momentum is projected to be sustained, with real gross domestic product (GDP) growth forecast to recover to a range of 1 to 3 per cent for fiscal year 2025/26, largely driven by expansions in the Agriculture, Mining, and Tourism sectors.

Crucially, this growth is unfolding alongside a “tight labour market” and “anecdotal information on elevated wage growth”. These conditions are critical because they typically create a self-reinforcing cycle of inflation: higher wages boost consumer spending power, which in turn allows businesses to continue passing on costs.

It is against this backdrop that the MPC judges “the risks to the projected path for inflation over the next eight quarters are skewed to the upside”. This signals the bank’s primary concern is not current low inflation, but the potential for price growth to reaccelerate unexpectedly.

External Risks and Global Context

The bank identified specific external threats that informed its cautious stance. These include the potential for “a sharper-than-anticipated increase in tariffs” by the United States, which could fuel imported inflation for Jamaica, and a further “escalation in geopolitical tensions” disrupting global supply chains.

The decision comes amid a shifting global interest rate environment. The US Federal Reserve cut its own policy rate in September, a move that has improved the interest rate differential with Jamaica. The BOJ noted this should “better support stability in the foreign exchange market”.

The current account of Jamaica’s balance of payments is also projected to stay in surplus, with healthy international reserves providing an additional buffer.

Market Recalibration

The announcement forces a recalibration of market expectations. The BOJ’s steadfast hold, coupled with its detailed justification, signals that future policy shifts will be strictly data-dependent and that the bar for rate cuts remains high.

The central bank reaffirmed its commitment to “maintaining low and stable inflation” and said it would “continue to monitor the incoming data and adjust its policy accordingly”.

The MPC’s next policy decision is scheduled for November 20, 2025, giving investors and analysts time to reassess the incoming flow of economic data against the bank’s clearly articulated hawkish bias.