Economic Programme Oversight Committee (EPOC) Chairman, Keith Duncan, says it is expected that the Bank of Jamaica (BOJ) will continue to ease monetary policy and further reduce interest rates.
For the first time since October 2022, the BOJ’s Monetary Policy Committee (MPC) decided to cautiously ease its monetary policy stance, resulting in the Bank’s indicative policy interest rate being reduced by 25 basis points to 6.75 per cent per annum, effective August 21.
This reduction means that commercial banks and other deposit-taking institutions (DTIs) can commence lowering the rates at which they offer loans and other lines of credit to consumers to spur domestic activity.
Mr. Duncan, who was addressing Friday’s (September 13) virtual EPOC Quarterly press briefing, noted that globally “Central Banks will continue to ease monetary policy in the short term, driven by incoming data”.
He said EPOC has observed a sustained downward trend in inflation, reflecting the effectiveness of the BOJ’s monetary policy actions in recent years.
He noted, however, that the BOJ needs to look at balancing inflation and growth.
“The Bank of Jamaica is quite focused on inflation targeting but we believe that the BOJ’s mandate could possibly take into consideration balancing inflation targeting with the growth dynamics of the economy. [This is] especially given that Jamaica has little margin for erosion of growth, as the economy normalises in its long-term growth rate of one to two per cent,” he pointed out.
Looking ahead, Mr. Duncan said that the risks to the gross domestic product (GDP) forecast are skewed to the downside over the short to medium term, depending on the pace of easing of monetary policy, including the pace and quantum of reduction of interest rates, domestic and external demand and the risks of weather-related shocks.
“However, on the upside, if the estimated impact from Hurricane Beryl is overestimated and/or the recovery from the Hurricane is faster than forecasted, Jamaica could see an upward adjustment to GDP growth,” he said.
Further, Mr. Duncan said that in light of the estimated slowing of the economy for the April to June 2024 quarter and the impact of Hurricane Beryl, tax revenues are likely to be impacted.
EPOC is strongly encouraging optimising the fiscal and monetary policy mix, which may require some fiscal adjustments, accompanied by more aggressive easing of monetary policy and interest rate reductions to maintain macro fiscal stability and to proactively move Jamaica back into the medium-term growth range of one to two per cent.
Meanwhile, Mr. Duncan noted that the global economy remains resilient with growth projected at 3.2 per cent for 2024 and 3.3 per cent in 2025, despite relatively high interest rates.
