Stop chasing inflation
BOJ hikes rates again and economist calls for caution ‘as inflation starts to slow’

THE Bank of Jamaica (BOJ) has responded to Mondays’ inflation numbers by raising rates for the sixth time since September last year.

The Statistical Institute of Jamaica (Statin) on Monday reported inflation in April reached 11.8 per cent. The out-turn “represented the ninth-consecutive month that inflation has been above the bank’s target range of 4.0 to 6.0 per cent,” the central bank noted.

In response, on Thursday through its monetary policy committee (MPC), the central bank announced that its key policy rate will be increased by 0.5 per cent. That increase took the rate to five per cent, the highest it has been since March 2017, after it hovered at at a historic low 0.5 per cent for two years from August 2019 to August 2021.

“The bank’s decisions aim to continue limiting the pass-through of the ongoing and protracted commodity price shock to inflation and facilitate a return of inflation to the target range over the shortest possible time period,” the bank noted about its latest interest rate hike. It added that its current decision reflect a cumulative increase in the policy rate of 450 basis points since October 2021, which has taken the policy rate close to the level that the MPC considers appropriate, signalling that rate hikes could slow after the one that takes effect today, unless things take a turn for the worse.

STOKES...the Bank of Jamaica can’t be inflation-chasing. It can’t be responding to higher point-to-point inflation by increasing interest rates

But the continued rate hike has not been founding favour with financial economist Dr Adrian Stokes.

“Given the nature of the inflation that Jamaica is experiencing, increasing local interest rates is not necessarily the solution,” Stokes, who is also the chairman of the Private Sector Organisation of Jamaica’s economic policy committee, told the Jamaica Observer.

Stokes maintained as he has done since the central bank signalled last August its intention to raise rates that the move was wrong given that most of the inflation the country was experiencing was imported.

“So the effect of the Bank of Jamaica increasing interest rates is to slow the economy,” he continued as he added that local interest rates will have to be increased to a fairly significant level for it to have any impact on the type of inflation that Jamaica is seeing. The bank did not shy away from fears that its interest rate hikes could negatively impact the economy. “The measures are also expected to cause demand in the economy to fall and, consequently, limit the ability of businesses to pass on price increases to consumers,” it wrote in its notes.

Stokes said with inflation in April coming out at -0.1 per cent, which was the first dip in average consumer prices in any month since April last year, and possibly signalling that price increases are starting to slow. “That is telling me that we are reaching the peak of inflation, so the month-over-month [inflation rates] will start to slow,” the financial economist said even though he admits that “it’s too early to say, but I believe we are seeing some levelling off of the inflation.”

“The Bank of Jamaica can’t be inflation chasing. It can’t be responding to higher point-to-point inflation by increasing interest rates. It has to take into consideration the fact that we had very low inflation last year and that the headwinds for growth are not looking good,” Stokes added. He said he expects inflation to start levelling off going into the summer “unless the [war] in Europe escalates.”

The sentiments expressed in his last point was shared by the central bank.

“While inflation is forecast to rise further over the next two months, the bank forecasts inflation to fall in the second half of the year, consistent with consensus forecast for a fall in commodity prices. This means that the public should start to see lower inflation rates each month, beginning in the second half of 2022, as long as tensions between Russia and Ukraine do not escalate and inflation among Jamaica’s trading partners falls,” the central bank itself said in its release which came out shortly after the interview with Stokes.

MAHFOOD...I’m very nervous with what the BOJ is doing (Photo: Joseph Wellington)

John Mahfood, the president of the Jamaica Manufacturers and Exporters Association (JMEA), was also scathing about the rate hike, calling it “a big mistake.”

“Mortgage rates are now at 8.5 per cent and commercial loans are much higher than that. We are facing a real slow down in construction with what has happened already. I’m very nervous with what the BOJ is doing,” Mahfood added.

He said the JMEA and a “broad cross-section of society believe we are at the point where we could go backwards and this increase is going to be very bad for the economy.” Mahfood told the Caribbean Business Report that he thinks increasing interest rates is teetering on becoming disastrous. “I’ve written to them to ask them to please be cautious and not increase the rates. “

However, in notes accompanying its rate announcement the central bank said it also decided to continue other measures to contain Jamaican dollar liquidity expansion and to maintain stability in the foreign exchange market. It pointed to its strong international reserves as an anchor which reinforces its ability to support the foreign exchange market as needed. At the end of April, the Bank of Jamaica had gross reserves of US$4.35 billion, which was enough to cover just under 30 weeks of imports. To help maintain stability in the foreign exchange market, the BOJ has since October sold US$552 million to the foreign exchange market, a figure which is more than twice the amount sold for the corresponding period last year.

The central bank is to open itself for questioning about the factors influencing its monetary policy decision at its monetary policy press briefing, scheduled for Tuesday, May 24, 2022. The date of the next policy decision announcement is June 29, 2022.

Dashan Hendricks

Now you can read the Jamaica Observer ePaper anytime, anywhere. The Jamaica Observer ePaper is available to you at home or at work, and is the same edition as the printed copy available at


  1. We welcome reader comments on the top stories of the day. Some comments may be republished on the website or in the newspaper; email addresses will not be published.
  2. Please understand that comments are moderated and it is not always possible to publish all that have been submitted. We will, however, try to publish comments that are representative of all received.
  3. We ask that comments are civil and free of libellous or hateful material. Also please stick to the topic under discussion.
  4. Please do not write in block capitals since this makes your comment hard to read.
  5. Please don't use the comments to advertise. However, our advertising department can be more than accommodating if emailed:
  6. If readers wish to report offensive comments, suggest a correction or share a story then please email:
  7. Lastly, read our Terms and Conditions and Privacy Policy