BOJ chops policy rate

The overnight policy rate was chopped by an unusually large 20 percent by Bank of Jamaica (BOJ) to take effect on Thursday 28 June 2018, as local prices  deflated for the year to May.
BOJ announced its decision to lower the policy rate by an above the more accepted 25 basis points by slashing the rate by 50 basis points to 2 percent. The falls also come as a result on the continued fall in June’s Treasury bill rates that had fallen just around the overnight rate and against a high level of liquidity in the financial system.
Bank of Jamaica’s decision to increase monetary policy accommodation reflects its assessment that, inflation over the June to December 2018 quarters is likely to remain below the target of 4 percent to 6 percent and that the previously projected increase in inflation towards the centre of the target in the March 2019 quarter is at risk of coming in at a lower level.
According to the BOJ,” in March, April and May 2018, inflation fell below the lower end of the Bank’s inflation target of 4 percent to 6 percent.” Data released by Statistical Institute of Jamaica reported Jamaica as having recorded a period of deflation for the three months. BOJ also stated that “core inflation (measured by changes in the CPI excluding agriculture and fuel) has also been low, in the region of 2 percent to 3 percent. The main factors that contributed to inflation being lower than the target included a stronger-than-anticipated recovery in agricultural supplies following adverse weather shocks in 2017, lower-than-forecasted imported inflation (associated with an appreciation in the Jamaican dollar over the year to April 2018 and a reduction in the pass-through of oil prices to inflation) and weaker-than anticipated domestic demand.”
The Bank’s view on inflation for the remainder of 2018 is largely predicated on expectations for continued weak domestic demand, which is being constrained by tight fiscal policy and increased uncertainties about global trade. The assessment also reflects the expectation for agricultural food prices to remain low for longer than previously anticipated and the possibility that international oil prices could be lower than previously projected. In the medium-term, the Bank’s outlook for inflation continues to reflect a sluggish recovery in economic activity.
The decision to loosen the policy stance is aimed at fostering greater credit expansion and a faster pace of GDP growth which will support inflation returning to the target of 4 percent to 6 percent.

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