THE Bank of Jamaica (BOJ) on Thursday announced its ninth-successive interest rate hike in a year as it continues to battle the highest level of inflation of any Caricom economy, except Haiti and Suriname.

The central bank repeated last month's hike of half a percentage point, taking rates to 6.50 per cent. The next rate decision is set for November 18.

"While the key drivers of inflation and other economic indicators are trending in the right direction, conditions have not sufficiently solidified to ensure that inflation is sustainably on a downward path," the BOJ stated in a release.

With Thursday's move, the BOJ has already raised borrowing costs for business and consumers back to levels last seen in August 2011 in a bid to take the heat out of inflation, which at 10.2 per cent over the last two months, continues to hover at a rate which doubles the mid-point of the central bank target of 4.0 per cent to 6.0 per cent.

Like most major central banks across the globe, the BOJ is having to weigh the need to prevent price rises getting out of hand and the damage caused by aggressive rake hikes. But the interest rate hikes have not fed into a recession in Jamaica and forecasts from various institutions in Jamaica and internationally, including the central bank itself and the International Monetary Fund, do not suggest the country will enter a recession anytime soon.

In fact, the economy is forecast to grow between 2.5 per cent and 4.5 per cent this year, and between 1.0 per cent and 3.0 per cent next year. The central bank pointed out in notes accompanying its decision to increase interest rates again that it expects that when data are collated, it will show the economy expanded by 2.5 to 3.5 per cent during the July to September quarter, which ends today, adding that growth signals a "healthy rebound in economic activity".

Still, the central bank's notes also signalled that it is worrying that its rate hikes over the last year are not having the impact it would like to see, even though in the past it has stressed that its actions tend to only bear fruit one to two years after they are taken.

But the BOJ was quick to point out that while, from September 30 last year up to the end of July this year, it had increased its key policy rate from 0.50 per cent to 5.50 per cent, "the weighted average deposit rate offered by deposit-taking institutions (DTIs) to the public has increased by only [0.37 per cent]".

The impact of interest rate increases in the United States also came in for scrutiny, especially with the Federal Reserve — the US central bank — not only hiking rates as it did last week when it moved its policy rate up by 0.75 per cent, but also for signals it has given that its policy rate could rise to 4.4 per cent by end-2022 and to 4.6 per cent by end-2023, compared to its previous median projections of 3.4 per cent and 3.8 per cent.

"This more aggressive stance could result in US dollar assets becoming more attractive relative to those denominated in Jamaican dollars, which could cause capital outflows, prompting a faster pace of exchange rate depreciation and, consequently, a derailment of the bank's efforts to manage inflation."

A hike in interest rate aside, the BOJ also decided to continue pursuing other measures to control how much money is available in the financial system and maintain relative stability in the foreign exchange market.

"Without these actions, imported inflation and hence the final prices faced by Jamaican consumers would have been higher."

To help maintain a relatively stable currency, the Bank of Jamaica has in its arsenal US$4.3 billion.

The central bank also wants to see Jamaicans saving more instead of spending, and added that it "is also considering further measures to support upward movements in DTIs' deposit rates". It however did not expound on what measures it will take.

In August, the BOJ said it is prepared to halt interest rate hikes if the income data support that stance. This month it outlined that the data supported its rate hike.

For example, the central bank pointed out that when it excluded the volatile categories of food and fuel from the headline inflation rate of 10.2 per cent, so-called core prices jumped by an unexpectedly sharp 8.3 per cent from July to August. It said that rate for core inflation "was marginally higher than the July 2022 outturn", though it didn't provide the figures for July.

The BOJ monitors core prices closely, and the latest figures heightened fears that interest rate hikes are not close to an end, even though the central bank said last month that the current levels are close to an "appropriate rate" to fight off inflation. The core price figures solidified worries that inflation has now spread into all corners of the economy.

The other data influencing the rate decision was that the price of fuel. While crude prices dipped 8.3 per cent in August, liquefied natural gas (LNG) prices increased by 23.3 per cent for the month. The BOJ had pencilled in a decline of 16 per cent for the fuel, which is used to generate more than half the electricity in Jamaica.

It also pointed out that while average grain prices fell faster than it had expected in August, there are indications that sugar prices are set to rise with the sweetener short globally.

The central bank said the Government's fiscal policy stance continues to pose no risk to inflation over the near term.

It said it will closely monitor the global and domestic economic environment and is prepared to act as necessary to ensure a downward track for inflation.