We asked and the answer is… NO, the Bank of Jamaica will not be lowering interest rates right now.
So, the Bank of Jamaica says it’s keeping the policy rate at 5.75%.
They had cut the rate from 6% to 5.75% back in May, when inflation had come back into the target range.
Since then, the Central Bank has chosen to hold the rate through June, August, and now September. Their goal is to keep prices stable, keep the foreign exchange market calm, and keep inflation within target.
We talked about this recently. Inflation fell to just 1.2% in August, which is lower than BOJ’s target range of 4 to 6% . So would this prompt the BOJ reduce interest rates to stimulate movement in the economy?
Well, no.
Following their Monetary Policy Meeting, the BOJ explained that while headline inflation in August was very low, that dip is likely temporary. For one, last August, food prices were sky high because Hurricane Beryl damaged crops and killed thousands of animals. So in comparison to last year, food prices are much cheaper now. Plus, the Government’s reduction in GCT on electricity went into effect earlier this year, which has helped lower prices.
These effects are temporary. So when you strip out food and fuel, core inflation was actually 4.2 per cent in August, which is within target.
And of course, the BOJ has to pay attention to what’s happening on the international stage. Particularly in the US. The Federal Reserve just cut interest rates for the first time this year.
“The Fed Funds rate is lower than the BOJ’s rate right now. The BOJ rate is at 5.75% and the Fed’s rate is between 4-4.25%. We need to maintain a safe enough distance or gap between those two rates because if they get too close we might have capital flight.”
That was Sagicor’s Capital Market’s Manager, Stuart South on Taking Stock recently.
And capital flight is exactly what it sounds like; money rapidly leaving the country. That would put more pressure on our forex market, which would in turn drive up the exchange rate and cause a whole other set of problems.
So the BOJ has to take all of that into account.
And that’s the bottom line.
