FIRST, a mea culpa. Last week, due to a combination of my rushing and not feeling well, a couple of points were accidentally included in my piece, and spotted by some smart readers. So in pursuit of correction, I don’t think Jamaica’s Bank of Jamaica (BOJ) reserves should be used directly for infrastructure investment, and of course, it is the minister of finance and not the BOJ that sets the inflation target.

Both these points, however, offer an opportunity for further discussion. As the BOJ effectively recognised, this year Jamaica may need to run a current account deficit in order to finance needed infrastructure investments, particularly as the tourism industry will take time to get back up after Hurricane Melissa.

My point was, without substantial new levels of foreign direct investment or international borrowing, this might lead to a mild decline in our reserves rather than the constantly rising levels that we have become used to. We should not be overly concerned if this happens, however, as there is no point in having a piggy bank which we can’t use when the rainy day arrives.

The other key point is self-explanatory. It is the minister of finance who sets the inflation target, so the BOJ decision is whether to adjust monetary policy to keep it within the band. Post-Melissa, many, including the BOJ, expected that the shock of the hurricane would push inflation outside of its target band of four to six per cent.

However, there is another view, as well known economist Dr Adrian Stokes argues: “Underlying economic growth in Jamaica was relatively weak even before the onset of Hurricane Melissa. A prolonged period of tight monetary policy designed to stem heightened headline inflation eventually took a toll on local growth momentum. Globally, major central banks have been looking for opportunities to loosen monetary policy, given cooling inflation conditions and a less-than-robust outlook for economic growth.”

The key point is whether the BOJ is meant to only have a formal goal of price stability, meaning its primary objective is keeping inflation within its target range, and if so, what does the apparently additional line in the BOJ Act “the growth and employment objectives of the Government” actually mean? In short, are these subordinate objectives to be balanced against inflation, or is the BOJ a “one mandate” central bank?

Dr Stokes observes that, “While the BOJ’s mandate is to maintain prices within a range of four to six per cent, it clearly has a de facto economic growth mandate through what economists call the Phillips curve or the relationship between the unemployment rate and inflation. A weak economy leads to a rise in unemployment and a fall-off in inflation. The reverse is also true. Applied to Jamaica, weak underlying economic growth that drives an increase in unemployment will ultimately lead to falling inflation that threatens the lower bound of the BOJ inflation target. Inflation below a certain level is just as problematic as heightened inflation.”

In short, Dr Stokes argues whatever the meaning of this clause in law, practically a central bank must also consider growth and employment, just as it would, say finance the Jamaican Government on a hopefully short-term basis during a crisis.

One question to be asked is: If the attack on Iran, and the consequent rise in oil prices, had occurred before their monetary policy meeting, would the BOJ still have cut interest rates?

Dr Stokes again provides a reasonable view: “Going forward, there is a short-term risk of headline inflation going higher due to ongoing geopolitical tensions. However, core inflation should remain well anchored, given weak underlying economic fundamentals and contained inflation expectations. These are the factors that should drive monetary policy, not short-term fluctuations in headline inflation. On the balance of risk, there is a strong case for looser monetary conditions to support the local economy.”

History may also be a guide. BOJ Governor Richard Byles noted in his speech that for the three months after the hurricane, the Statistical Institute of Jamaica recorded inflation rates within or just slightly below the lower limit of the bank’s target range. He also asked his audience to recall that since August 2024 there have been 17 months of inflation within or below the target range. This all suggests that inflation is controlled, probably reflecting the previous sluggish economy, which now faces an additional recovery challenge.

Foreign exchange flows appear surprisingly strong also. The BOJ notes that since the passage of the hurricane it has sold approximately US$365 million into the market for the period November 1, 2025 to January 31, 2026, or US$452 million, including Petrojam, but purchased net approximately US$152 million, all while the exchange rate has actually appreciated since November 2025, supported by strong foreign currency inflows, eg improved remittances.

Cumulatively, BOJ sold US$1.1 billion via its BFXITT facility over the 12 months to end-January 2026, the same as the US$1.1-billion sold over the 12 months to end-January 2025. More impressively, despite the hurricane, the bank purchased on a net basis approximately US$990.5 million over the 12 months to end January 2026.

One of the many encouraging things in the BOJ report is that the financial sector seems stronger than expected, with so far a tiny rise in non-performing loans from 2.5 to 2.8 per cent, and the BOJ does not expect bad loans to double. In short, the BOJ may not need to provide COVID-type targeted liquidity support to the banking system, although it may still want to increase Jamaican-dollar liquidity generally to allow corporates and households greater access to the financing they need to rebuild.

In short, as I had meant to say last week, Jamaica does not appear to need to follow unconventional strategies such as widening the inflation target range to support the economy post-crisis. However, in line with international research, a more accommodative approach may help to absorb supply and demand shocks, and both shorten recession and accelerate recovery particularly where fiscal space is limited.

BY KEITH COLLISTER