JAMAICA-BOJ increases policy rate as part of policy measure to curb inflation.

KINGSTON, Jamaica, CMC –  The Monetary Policy Committee (MPC) of the Bank of Jamaica (BOJ) has unanimously decided to increase the rate offered to deposit-taking institutions (DTIs) on their current account balances by 50 basis points (bps) to six per cent.

The BOJ said that the new measure taken in August and which became effective as of Tuesday was appropriate based on the assessment of the risks at that time, noting, however, that since then, the escalation of tensions in the Middle East and the Russia-Ukraine conflict have resulted in a worsening of persistently high commodity prices consistent with the assumptions underpinning the Bank’s severe scenario.

The BOJ said global financial conditions have also tightened more rapidly than projected amid the prevailing uncertainty.

The MPC assessed that, in the context of these developments, inflation pressures are likely to persist longer than originally anticipated. It said an increase in the policy rate is, therefore, necessary at this juncture to limit second-round effects.

“This policy action will ensure that elevated inflation over the near term does not become further embedded in inflation expectations, thereby resulting in a protracted delay in the return of inflation to the target range.”

The Statistical Institute of Jamaica reported that headline inflation in August 2026 was 7.9 percent, above the 7.5 percent recorded in July 2026 and the 1.2 percent recorded in August 2025.

The August 2026 outturn, while being below the Bank’s most recent projection, represented the third consecutive month since May 2026 in which inflation exceeded the upper limit of the Bank’s target range.

Higher headline inflation in August 2026 relative to the previous month mainly reflected the impact of drought conditions on agricultural prices, which adversely affected crop yields, particularly vegetables, as well as the pass-through of higher international commodity prices to petrol costs.

The MPC said that in August 2026, core inflation, which excludes the prices of agricultural food products and fuel from the Consumer Price Index, was 5.2 percent, in line with the July 2026 outturn but above the 4.2 percent recorded in August 2025.

It said that the higher core inflation relative to last year reflects emerging, though still limited, second-round effects on processed food and selected services. These second-round effects emanated from elevated domestic agricultural food prices and higher prices for imported commodities, particularly energy and transport.

Headline inflation is projected to continue rising over the near term before returning to the target range by mid-2027, depending on the duration of the conflicts in the Middle East and between Russia and Ukraine.

The MPC said upward inflation impulses are also expected from increased domestic demand, linked to recovery spending by the Jamaica government and the normalization of activity in selected sectors of the economy following the impact of Hurricane Melissa.

It said inflation risks over the next eight quarters remain skewed to the upside, meaning inflation could be higher than projected.

The main upside risk is a stronger-than-projected pass-through of rising international commodity prices to domestic prices, driven by more protracted geopolitical tensions.