Sat | Sep 24, 2022

BOJ hikes rates again to 5.5%

Published:Thursday | June 30, 2022 | 12:13 AM
The Bank of Jamaica in Kingston.
The Bank of Jamaica in Kingston.

The Bank of Jamaica (BOJ) raised the benchmark interest rate offered to deposit-taking institutions on overnight placements with the central bank by 50 basis points to 5.50 per cent, effective June 30, notwithstanding continuing pressure from the business sector to hold back on further hikes.

It is the seventh consecutive increase in the policy rate by the monetary policy authority since last September to tackle inflation, which is at its highest level since 2010.

Consumer price or headline inflation in May was estimated at 10.9 per cent, but while the rate reflected a near one percentage-point drop from 11.8 per cent in April, and is projected to cool further in June and ensuing months, the BOJ Monetary Policy Committee cited global and other factors for its unanimous decision for its continuing pro-rate hike stance.

“While headline inflation at June 2022 may be lower than expected, the central bank prefers to see evidence of a definitive fall in commodity prices, consistent with global consensus forecasts, and a reduction in core inflation before moderating the tight monetary policy stance,” the central bank said in a statement issued late Wednesday.

BOJ added that it expects inflation to dip further in the September and December 2022 quarters.

“Of course, this depends on tensions between Russia and Ukraine not escalating and inflation among Jamaica’s trading partners also moderating,” it cautioned.

The BOJ also noted that its monetary tightening was consistent with the actions of large global powers to curb inflation.

Earlier in June, the US Federal Reserve Board, for example, decided to increase the benchmark federal funds rate by 75 basis points and signalled that further increases in the policy rate could be at a faster pace than originally projected for the remainder of 2022.

Jamaica’s new benchmark rate, at 5.5 per cent, represents an elevenfold rise from the record 0.5 per cent low that existed for two years, from August 2019 to September 2021. The BOJ changed direction after pandemic pressures pushed inflation beyond the inflation target range of 4 to 6 per cent that it is mandated to defend.