LOCAL analysts say they believe the Bank of Jamaica (BOJ) will hold rates for a third-consecutive time when its monetary policy committee (MPC) meets next week, especially after the Federal Reserve — the US central bank — raised its key interest rate by a quarter-point on Wednesday, despite concerns that higher borrowing rates could worsen the turmoil that has gripped the banking system. The Fed's rate hike follows on from the European Central Bank (ECB) raising rates by 0.50 per cent last week.

"Based on the ECB 50-basis points increase and [the] Fed raising rates by 25 basis points, it's clear inflation remains an issue," one analyst who asked not to be named told the Jamaica Observer before pointing out that when it comes to the action of central banks around the world, "The Fed rates matter more for emerging markets" such as Jamaica.

"Given the moderate move by the Fed, it's my view that the BOJ will not move rates at the next MPC," the analyst continued.

The view is shared by financial economist and CEO of Quantas Capital, an alternative asset management company, Dr Adrian Stokes.

"My expectation is for the BOJ to remain on hold," Stokes said before adding that he thinks the BOJ, "really should be more concerned about tight monetary conditions interacting with a slowing Jamaican economy".

The Bank of Jamaica increased rates ten consecutive times between October 2021 and November 2022, moving rates from 0.5 per cent to 7 per cent over that time, but held the rates at that level — the highest it has been since February 2011 — at both its December and February meetings in an effort to cool inflation that was stoked by higher commodity prices, supply chain issues, and shipping challenges associated with the COVID-19 pandemic and the Russia-Ukraine war.

As international prices eased and supply chains became unclogged, year-over-year inflation in February dipped to 7.8 per cent, the lowest it has been since December 2021.

"In Jamaica, headline inflation continues to fall in line with expectations," Stokes noted. "Inflation in Jamaica should continue to fall as the COVID economic recovery has ran its course and the economy is expected to slow going into 2024," he added.

"The BOJ should really be focused on whether it has tightened financial market conditions too much, given some of the headwinds the Jamaican economy will face in coming months."

And with an eye on the turmoil in the US financial markets after the collapse of Silicon Valley Bank and Signature Bank in quick succession, and concerns about the role high interest rates may have played, Stokes noted, "The Fed seems to have found a middle ground by increasing interest rates by 25 basis points, recognising that financial sector risks have increased materially while a strong labour market continues to pose a risk to core inflation in the US."

Along with its ninth hike since March 2022, the rate-setting Federal Open Market Committee noted that future increases in the United States are not assured and will depend largely on incoming data.

Consensus in the local market is that if the Fed increases interest rates by 25 basis points to 50 basis points at its next meeting, then the BOJ too will hike its rates by 25 basis points when it meets again in May.

"The fact that our inflation numbers are subsiding, then it's a plus. But let's see how the salary increases in the budget and the adverse weather impacts agricultural prices over the next few months," the analyst added.