The Bank of Jamaica (BOJ) in an assessment carried out in December and published in its annual report last week, says that there is some risk that headline inflation would fall below its target at various times during 2019 and 2020.
The central bank has a medium-term target of 4-6 per cent for inflation, but the rate continues to underperform the low end of the range. Annual or point-to-point inflation in January, for example, was tracking at 2.3 per cent.
In the new report, the BOJ indicates that its assessment for 2019 and 2020 was informed by trends in international commodity pricing, particularly for oil, as well as seasonal improvements in domestic agricultural food production.
As such, the bank said it would maintain a monetary policy stance “aimed at fostering conditions that will accelerate the level of growth in the Jamaican economy that will return inflation within the target of 4.0 per cent to 6.0 per cent in the medium-term”.
One of the tools being wielded by the central bank is interest rates. BOJ’s last downward adjustment to its policy rate happened in February, which was cut from 1.75 per cent to 1.5 per cent.
In 2018, the policy rate was adjusted five times, resulting in 150 basis points of cuts.
BOJ says its targeted inflation rate is meant to keep Jamaica on a growth track and minimise the risk of precipitating a return to recessionary conditions. Growth in the economy in 2018 was estimated at 1.7 per cent, a substantially better outcome that the 0.7 per cent growth in 2017.
However, despite the policy adjustments, inflation fell below the lower end of the target in both the June and December quarters of 2018.
The bank said its assessments indicate that the missed targets during the year reflected the impact of stronger-than-anticipated declines in prices of agricultural produce as well as lower-than-forecasted oil prices.
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