Bank of Jamaica hikes interest rate to 6.50% Loop Jamaica

Black Immigrant Daily News

The Bank of Jamaica (BOJ), yesterday, announced its unanimous decision to increase the policy interest rate by 50 bps to 6.50 per cent per annum, effective Friday, September 30.

The central bank also expressed concern about the slow pace at which interest rates on local currency deposits and loans have responded to its policy signals.

According to the bank, its policy rate increased by 500 basis points (bps) between the end of September 2021 and the end of July 2022, while the weighted average deposit rate offered by deposit-taking institutions (DTIs) to the public has increased by only 37 bps.

Policy interest rate is offered to deposit-taking institutions on overnight placements with BOJ.

The central bank also indicated that though inflation and other economic indicators are trending in the right direction, conditions have not sufficiently solidified to ensure that inflation is sustainably on a downward path.

It also noted that the pace of monetary tightening among Jamaica’s main trading partners has accelerated.

For instance, the Federal Reserve Board (Fed) last week raised its interest rate target by 75 bps, 25 bps more than anticipated by the BOJ.

The Fed also changed its forward guidance to signal that interest rates could rise to 4.4 per cent by end-2022 and to 4.6 per cent by end-2023, compared to its previous median projections of 3.4 per cent and 3.8 per cent, respectively.

This more aggressive stance could result in US dollar assets becoming more attractive relative to those denominated in Jamaican dollars, which could cause capital outflows, prompting a faster pace of exchange rate depreciation and, consequently, a derailment of the BOJ’s efforts to manage inflation.

The BOJ also decided to continue pursuing other measures to contain the Jamaican dollar liquidity expansion and to maintain relative stability in the foreign exchange market.

To ensure that individual depositors are encouraged to continue to save in Jamaican dollars, the BOJ is also considering further measures to support upward movements in DTIs’ deposit rates.

The current decision has resulted in a cumulative increase in the policy rate of 600 bps since October 2021.

The BOJ said these interest rate adjustments, in conjunction with its decisive actions in the foreign exchange market over the period to date, have contributed to maintaining stability in the foreign exchange market.

“Without these actions, imported inflation and hence the final prices faced by Jamaican consumers would have been higher,” it said.

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