Effective today, December 21st, 2018, the Bank of Jamaica (BOJ) reduced their policy interest rate (the interest rate offered on overnight placements with the BOJ) by 25 basis points (0.25%) to 1.75%. The BOJ has indicated that its decision to continue its accommodative monetary policy reflects its assessment that inflation is likely to fall below the lower limit of its target range of 4.00%-6.00% in the latter half of 2019 and early 2020. However, the BOJ is predicting that inflation is likely to trend towards 6.00% by June 2019 and gradually trend downwards thereafter. The inflation projection for the latter half of 2019 through to 2020 is predicated on an expectation of lower crude oil prices and lower agricultural prices. Point-to-point inflation as at November 2018, as reported by the Statistical Institute of Jamaica, was 4.1%, lower than the 4.7% recorded at October 2018 and the 4.9% at November 2017.
The BOJ continues to maintain its accommodative monetary policy (characterized by low interest rates) to drive growth in private sector credit expansion at a pace that will generate growth and jobs. However, there is a likelihood of higher interest rates in the United States (US) given that the US Federal Reserve’s is forecasting an average two (2) interest rate increases in 2019. The divergence of interest rates in Jamaica relative to the United States is likely to lead to an increase in the demand for US$ denominated assets and may place upward pressure on the local exchange rate.