BANK of Jamaica (BOJ) policymakers were more concerned about the threat of imported inflation from US tariffs and global instability than about a domestic inflation rate that had fallen to a 57-year low, minutes of their September meeting have revealed, detailing the reasoning behind their recent decision to hold interest rates steady.

The monetary policy committee (MPC) unanimously voted to maintain the policy rate at 5.75 per cent, according to the minutes published recently, choosing to look past a 1.2 per cent inflation rate in August that was less than half their forecast of 2.6 per cent.

Their attention was firmly fixed on external threats. The minutes show policymakers concluded that recent US tariff announcements were likely to add about 1 percentage point to US inflation, a development that would directly raise the cost of goods imported from Jamaica’s largest trading partner. Jamaica imports about 38 per cent of its goods from the US.

This creates a policy bind for the BOJ. High US inflation could prevent the Federal Reserve, the US central bank, from cutting interest rates, which itself would limit the BOJ’s own room to cut its policy rate without risking a destabilising decline in the Jamaican dollar. A weaker currency would, in turn, make all imports more expensive and push domestic inflation higher.

“The risks to the inflation outlook were skewed to the upside,” the minutes stated, with members flagging that US measures could “directly affect inflation but could also induce second-round inflationary effects” – a vicious cycle where initial price hikes force businesses to raise prices further and workers to demand higher pay, making inflation a permanent problem.

They also saw a “further escalation in geopolitical tensions” as a key threat to international supply chains. For a trade-dependent island like Jamaica, this is a direct risk to price stability. New conflicts or shipping disruptions could block or delay the delivery of critical imports like oil, wheat, and manufactured goods, causing sudden shortages and soaring costs for consumers and businesses.

This external focus compelled the MPC to dismiss the historic low in domestic headline inflation. Policymakers judged the 1.2 per cent rate to be a “temporary” anomaly, arguing that it did not reflect the true underlying trend of prices in the economy.

The record low was driven almost entirely by a 10.3 per cent year-on-year plunge in agricultural food prices — a highly volatile sector that is more dependent on weather and seasonal harvests than on the strength of the broader economy. The committee’s concern was that once this temporary crash in food prices stabilises, the underlying inflation rate, which remains firmer, would be exposed and could be quickly pushed higher by the imported inflation from abroad.

Core inflation, which strips out food and fuel, remained at 4.2 per cent in August, firmly within the bank’s 4 to 6 per cent target band, validating their cautious stance.

This created a clear policy dilemma. Despite inflation averaging just 2.1 per cent over the past six months, the committee deemed the risks from abroad too significant to continue easing. The BOJ has cut rates by 125 basis points since August 2024, but it now finds itself unable to provide further relief to borrowers, prioritising the defence against imported inflation over stimulating the local economy.

The minutes also pointed to a domestic reason for pause, noting that short-term lending rates had fallen below the policy rate — a sign that monetary conditions may be looser than intended. In practice, this means there is more cheap cash circulating in the financial system than the central bank desires. For households this can be a double-edged sword as it may keep loan rates relatively low for borrowers but continues to suppress the returns savers get on their bank deposits. For the BOJ, it adds another reason to pause its rate-cutting cycle, as ample liquidity could risk fuelling future inflation.

Governor Richard Byles, who was absent, had expressed support for the hold decision, the minutes noted.