The Bank of Jamaica has announced the 25 basis points reduction in its policy interest rate from 0.75% per annum to 0.5% per annum, effective from 28th August 2019, representing a historical low for the rate since records began.
The decision to cut interest rates is to ensure that the inflation rate, which is projected to average 4.3% over the next eight quarters according to the Bank of Jamaica’s assessment, remains within the target rate of 4% to 6%. The Bank of Jamaica believes that inflation will fall below 4% in the absence of a policy response, hence the decision to cut the policy interest rate.
The inflation rate is predicted to range between 3.7% and 5% between September 2019 and June 2021, according to the Bank of Jamaica. The main factors that need to be monitored are the changes in energy prices (including oil prices, domestic demand for energy and domestic generation of energy), the general health of the global economy and also the interest rate movements in the United States of America.
According to the Bank of Jamaica, other macroeconomic variables are continuing to exhibit a positive trend, as “Foreign reserves are adequate, the current account of the balance of payments remains sustainable, market interest rates are low, labour market conditions continue to improve and the fiscal performance is strong”, the press release stated.
The Bank of Jamaica’s decision will also help stimulate the expansion of credit in the private sector with the goal of achieving a higher level of economic activity to push inflation towards the middle of its target range. There may also be additional ((although not immediate) spillovers into the Jamaican Stock Market, which is currently the best performing Frontier Market since the beginning of the year (up almost 37% as of the end of July 2019).
The next policy decision announcement date is Monday 30th September 2019. More information on the Bank of Jamaica’s recent decision can be found here.