BOJ policy meetings and rate hikesThursday, November 25, 2021
On Tuesday, November 16, the Bank of Jamaica (BOJ) announced that, at the meetings of its Monetary Policy Committee (MPC), the decision was taken to increase the policy rate by 50 basis points. The policy rate now stands at 2.0 per cent.
It should be noted that the meetings of the MPC were held over two days: November 11-12. The decision of the MPC is announced a few days after the meetings — November 16 in this instance. The summaries of the meetings and the monetary policy reports which inform the MPC's decisions are posted on the BOJ's website. The announcement of the outcomes of the meetings is followed by a press conference — November 19.
The MPC's September 2021 meetings were held on September 28 and 29 and the announcement was made on September 30, with the policy briefing held on October 1.
Why are meeting dates important? In the case of the November 16 rate hike, the MPC meeting would have occurred a few days before the Statistical Institute of Jamaica (Statin) released its inflation data for October 2021. Therefore, the inflation rate which guided the November 16 rate hike of the MPC was the annual point-to-point inflation rate for September 2021 (8.23 per cent). The annual point-to-point inflation rate is the percentage increase in prices from one year to the next; therefore, the September 2021 rate covers the increase from September 2020 to September 2021. The annual point-to-point inflation rates for July, August, September, and October (2021) are 5.35 per cent, 6.06 per cent, 8.23 per cent, and 8.46 per cent respectively.
Given the annual point-to-point inflation rates for the previous four months, readers can understand why the MPC hiked rates in September. To be sure, the August annual point-to-point inflation rate breached the six per cent mark and prompted some action. However, beyond this increase, inflationary pressures external to Jamaica meant that it was only a matter of time before the domestic rate breached the 4 per cent to 6 per cent range. The 100 basis points increase in the BOJ's policy rate, on September 30, was based on the August annual point-to-point inflation rate (6.06 per cent).
In my view, the MPC would have expected further increases in the inflation rate, given the persistent external inflationary pressures, and as such would have increased the policy rate by an amount that would not have to be revisited until the first quarter of 2022.
Indeed, monetary policy decisions are arguably more art than science, and so there is no precise formula which dictates a specific increase in the policy rate for some specific increase in the inflation rate. The fact that it is more art than science, especially in the case of Jamaica, partly explains why some stakeholders have understandably raised concerns about the rate increases given that the inflation rate is currently driven by external factors. Perhaps the BOJ is seeking to increase the credibility of its fledgling inflation targeting regime and policy independence by taking an inflation data-driven approach, which is gradual, instead of a one-off adjustment. In my view, the September and November rate hikes are two sides of the same coin.
The next set of meetings of the MPC will be held some time around December 16-17. The policy decision announcement is due on Monday, December 20, as noted in the publicly available MPC decision schedule. At its December meetings the MPC will use the inflation numbers published this week by Statin (that is the October 2021 inflation data). Depending on when Statin releases the inflation data for this month the MPC could also have that data to consider.
Will the MPC increase rates in December? Based on the October inflation data, and the recent hikes, I don't see why they should. Alas, perhaps last week they decided to leave another 25 or 50 basis points in the bag, as a Christmas present.
Dr Samuel Braithwaite is a lecturer in Department of Economics at The University of the West Indies, Mona. Send comments to the Jamaica Observer or email@example.com.