The Bank of Jamaica (BOJ) disclosed its decision to hold the policy interest rate in its last policy announcement.
The policy rate (the rate offered to deposit-taking institutions on overnight placements with BOJ) remains unchanged at 0.50 per cent per annum.
The next policy decision announcement date is February 16, 2021.
The BOJ says it has kept the policy rate at this historic low of 0.50 per cent based on its assessment that inflation will generally continue to remain within the target of 4.0 per cent to 6.0 per cent over the next two years, notwithstanding the temporary impact on agricultural prices from the recent rains.
“This accommodative monetary policy is aimed at supporting a recovery in economic activity,” it was stated.
The BOJ says it has also proactively implemented a number of initiatives aimed at preserving financial sector stability and ensuring the continued smooth functioning of the foreign exchange market.
It notes, “The economic outlook for Jamaica remains uncertain in the context of the ongoing COVID-19 pandemic but BOJ remains cautiously optimistic as we continue to assess and monitor new developments as they emerge.”
It outlined: “With the exception of the month of June, headline inflation has remained within the target range since the beginning of 2020.”
Annual headline inflation at November 2020, as reported by the Statistical Institute of Jamaica, declined to 4.3 per cent from 5.0 per cent at October 2020.
Underlying or core inflation, which measures the change in prices excluding agricultural food and fuel prices, was 3.4 per cent at November 2020, below the 3.6 per cent at October 2020.
The BOJ noted its current assessment remains broadly in line with projections communicated in November 2020, that inflation will average 5.3 per cent over the next two years and will, for the most part, track within the target range of 4.0 per cent to 6.0 per cent.
This forecast was mainly predicated on expectations for an uptick in agricultural food prices given the flood rains in October and November 2020, higher international commodity prices and expectations for increases in some regulated utility prices.
Core inflation was expected to remain relatively low given the weak demand conditions in Jamaica. The risks to the inflation forecast are balanced.
The BOJ says that factors that could cause the inflation rate to be higher than forecasted include: higher than anticipated inflationary pressures from food prices over the next three months; and stronger than anticipated increases in international oil and grains prices.
However, inflation could be lower than forecasted if demand conditions are weaker than projected.
The BOJ is also forecasting a contraction in the economy in the range of 10.0 per cent to 12.0 per cent in FY2020/21 before partially recovering within the range of 3.0 per cent to 6.0 per cent in FY2021/22.