The Bank of Jamaica (BOJ) announced its decision to hold the policy interest rate unchanged at 0.50 per cent per annum on September 29.
The policy rate is that offered to deposit-taking institutions on overnight placements with Bank of Jamaica.
The Bank stated, “Jamaica continues to grapple with the challenge of the COVID-19 pandemic and the adverse impact on economic activity. Bank of Jamaica has therefore kept the policy rate at the historic low of 0.50 per cent given our view that, in these circumstances, inflation will remain within the target of 4.0 per cent to 6.0 per cent and economic activity will remain weak.”
It further notes that the economic outlook for Jamaica remains “highly uncertain in the context of the ongoing COVID-19 pandemic.”
The BOJ said it will continue to assess incoming data and stand ready to implement other policy measures if the need arises.
The BOJ indicates that annual headline inflation at August 2020, as reported by the Statistical Institute of Jamaica, fell to 5.1 per cent from 6.3 per cent at June 2020.
Underlying or core inflation, which measures the change in prices excluding agricultural food and fuel prices, was 4.6 per cent at August 2020, above the 4.1 per cent at June 2020.
The BOJ in its statement said, “Bank of Jamaica’s current assessment remains consistent with our August projection that inflation will average 4.7 per cent over the next two years and will track within the target range of 4.0 per cent to 6.0 per cent. This forecast was mainly predicated on expectations for some economic recovery from the COVID-19 pandemic as well as higher energy and agricultural food prices.”
The central bank outlined that one factor that could cause the inflation rate to be lower than forecasted is weaker than expected domestic demand, however noting that there were other factors which could cause it to trend higher.
These, it said, include accelerated depreciation in the exchange rate that is sustained; a stronger than expected response of the prices of some food items as well as health and personal care goods and services to the shift in consumer expenditure in the context of the COVID-19 pandemic; stronger than anticipated increases in international oil prices; and higher agriculture prices, given the current active hurricane season.
As was had reported previously, Bank of Jamaica is forecasting a contraction in the economy in the range of 7.0 per cent to 10.0 per cent in FY2020/21 before partially recovering within the range of 3.0 per cent to 6.0 per cent in FY2021/22.