Time come for BOJ to start cutting interest rates

Interest rates in Jamaica and around the world were pushed up since 2021 to curb inflation that got out of hand, in the process Bank of Jamaica hiked their overnight rate that was from 0.50 percent up to August 2021 to a high of 7 percent in November last year, since then point to point inflation peaked in April last year at 11.8 percent, but has since declined sharply by 34 percent to February this year, with the pace since November last year running at 44 percent below the similar 2021 period.
The fall since 2021 has been consistent, although the rate for a few of the months exceeded this pace. The average monthly inflation rate has dropped from the 2022 level of 0.6 percent per month from November 2021 to October 2022 and is now running at an average of 0.2 percent per month or 2.4 percent per annum over the last five months, well below the Bank’s target of 4-6 percent per annum. If history is anything to go by, the next three months should see relatively low inflation, suggesting that the current average of 0.2 per month could continue for a few more months.
The Bank of Jamaica’s target is close at hand based on the point to point inflation, with the danger now that the rate could fall well below the lower end of the band if the BOJ does not act soon to lower interest rates.
They seem to have taken a first step by reducing the amount of money they are pulling out of the market, with the total amount of CDS dropping from $109.5 billion at the beginning of March to $82 billion at the last auction in March.
Investors who were receiving negative interest rates are now seeing positive rates for the first time since 2019 and the trend suggests that this will become more positive over the next few months as inflation continues to fall to more acceptable levels.
Government wage settlement and the minimum wage hike will pressure inflation, but interest rates at current levels are no longer warranted. Other developments in favour of lower inflation are a fall in the price of Oil on the world market from US$80 in early February when the last CPI was computed, and is now trading around $70 but fell as low as $65 in March, with some expecting more declines in the months ahead. The Jamaican dollar has been appreciating and is now down to J$151 region, thus having a moderating effect on prices across a wide cross section of goods and services.

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