Tuesday 7 April, 2020

BOJ lowers policy interest rate again

The Bank of Jamaica (BOJ) has again reduced the policy interest rate on overnight placements held by deposit-taking institutions by 25 basis points to 0.50 per cent effective Wednesday, August 28.

The change follows the decision by the Central Bank in June to hold the policy interest rate unchanged at 0.75 per cent per annum.

In a statement, the BOJ said the decision reflects its assessment that inflation is projected to average 4.3 per cent over the next eight quarters, which is within its four to six per cent target range.

But the central bank also said, in the absence of a policy response, inflation was likely to fall below the target’s lower limit at various points over the period.

The BOJ said that over the medium term, the forecast is for inflation to gradually approach the midpoint of the target, “albeit at a slower pace than previously expected”.

“The inflation forecast is mainly predicated on the continued impact of low domestic demand conditions, relative to the economy’s capacity, slower growth among Jamaica’s main trading partners, and decline in international commodity prices.

“It also accounts for the impact of imminent changes in the fuel mix in the domestic energy sector on electricity rates,” the BOJ added.

The central bank also noted that similar to previous decisions to reduce interest rates, the latest is intended to stimulate faster expansion in private sector credit, which is expected to spur higher economic activity, consistent with the inflation target.

It said it “will support inflation returning more quickly to the centre of the target”.

When the BOJ held the policy rate in June, it said then that its decision to do so was based on its assessment, at the time, that monetary conditions were appropriate to support the achievement of the inflation target of four per cent to six per cent over the medium term.

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