THE Bank of Jamaica (BOJ) said Thursday it was keeping its key interest rate at 7 per cent after its fifth-straight monetary policy committee (MPC) meeting since November, citing that even though inflation has declined significantly over the last few months, the fight to control consumer price increases is far from over.

Consumer prices rose 6.1 per cent in the 12 months through to May 2023, up from 5.8 per cent in April, but was significantly below the 10.9 per cent it was a year ago. But core inflation, a measure which excludes changes in the price of food and fuel, still remained at an elevated 4.2 per cent in May compared with the overall headline target of 4 per cent to 6 per cent, suggesting that high headline inflation will exhibit persistence in 2023.

In fact, the central bank said hikes in the price of telephone and Internet rates, the national minimum wage, seasonally higher agricultural prices as well as pending increases in bus and taxi fares are expected to drive inflation over the next few months. The forecast is that inflation will not decelerate to the BOJ’s target range until the December quarter, but that is predicated on a continued decline in the prices of imported commodities, chiefly fuel and food, and as its past interest rate hikes continue to restrain demand.

The Federal Reserve signalling its intent to resume its own rate hikes if inflation in the US proves sticky also influenced the BOJ’s decision. Two weeks ago, the US central bank paused its rate hikes after 10 consecutive meetings to assess whether it has already raised rates high enough to tame price increases.

Yet, there are signs that the intent of squeezing demand to tamper down price increases is working.

Deposit-taking institutions are passing on more of the higher rates now than during the first months of the BOJs rate hikes, after long frustrating the central bank’s efforts. The data show term rates on deposits have gone up by a further 22 basis points in April while borrowing rates have gone up by three basis points. Adjustments are also being made to the rates paid on consumers’ deposits and loans are getting more expensive, affecting everything from credit cards, to car loans and mortgages.

And the deposit-taking institutions signal they will be increasing rates further over the next three months.

“The flow of new loans to the private sector also declined in real terms by 12.7 per cent over the year to April 2023 and generally reflected the impact of higher interest rates and the tightening in credit terms,” the BOJ said in notes accompanying its rate decision.

“These developments will contribute to further downward pressure on inflation,” while stability in the foreign exchange market and the higher yields on some domestic savings have seen consumers reducing their holdings of US dollars in savings accounts, helping to make the BOJs monetary policy decision more effective.

“At the same time, the MPC assessed that the domestic banking system remains sound with adequate capital and liquidity,” the notes continued.

The BOJ, however, stayed away from sending any signals about its likely move when it announces its next decision on August 18.

“Future monetary policy decisions will depend on the incoming data,” it said, adding that it “will continue to closely monitor the global and domestic economic environments for potential risks to Jamaica’s inflation rate.”

This, as leading global central bankers asserted Wednesday that they are not backing off their steep interest rate increases, pointing to inflation being more persistent than expected but still downplaying fears of recession from their hikes.

The message was that borrowing costs would stay high until the inflation beast is subdued, according to a panel discussion with US Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey and Bank of Japan Governor Kazuo Ueda.

The comments from some of the world’s top central bank leaders underscored that inflation is turning out to be more widespread than originally hoped — and that borrowing costs are likely to go higher, and stay high for longer, than many had anticipated.

That could hold back economic growth as borrowing becomes less affordable for everything from auto loans to credit cards, raising the risk of recession. Growth has been weak globally, and Europe’s economy already shrank for two straight quarters — one definition of recession.

But with unemployment at lows, that gives little indication of a true recession. The central bankers said their economies have been more resilient than expected and they don’t foresee a contraction.

In Jamaica, there is no contraction either. The job market remains robust, and the economy is expected to continue growing, though at a significantly lower rate of 1 per cent to 3 per cent, down from the estimated 4 per cent to 5 per cent range recorded in the fiscal year which ended on March 31.