Jamaica Raises Policy Rate to 6% as Inflation Risks Increase

Bank of Jamaica raised its policy rate to 6.0% from 5.50% on Sept. 29 after inflation climbed to 7.9% in August, well above the central bank’s 4%-6% target range.

The increase responded to persistent price pressures linked to energy, transportation, agriculture and imported commodities. Bank of Jamaica also cited stronger domestic demand from recovery spending and the normalization of economic activity after Hurricane Melissa.

Inflation rose from 7.5% in July and 1.2% a year earlier. Core inflation reached 5.2% in August.

Inflation is projected to remain elevated in the short term, with a return to the target range expected by mid-2027. That forecast depends partly on geopolitical conflicts, weather conditions and crop yields.

The rate increase followed an August decision to leave borrowing costs unchanged at 5.50%, when policymakers viewed the inflation shock as largely temporary. By September, they judged that the pressures had lasted long enough to risk becoming embedded in inflation expectations.

Businesses’ 12-month inflation expectations increased to 7.3% in July from 6.7% in June, adding to concerns that higher prices could affect wages, prices and inflation expectations.

International reserves remained healthy, providing a buffer against uncertainty, while the exchange rate was expected to remain relatively stable. The central bank’s next policy-rate announcement is scheduled for Nov. 18.