Bank of Jamaica (BOJ) has reduced the rate offered on overnight placements with Bank by 25 basis points to 1.75 per cent.
The central bank’s decision to lower its rate on short-term or ‘overnight’ loan is aimed at stimulating a pick-up in the rate of expansion in private sector credit, which should lead to higher economic activity and ultimately support inflation being maintained in the target range of 4.0 per cent to 6.0 per cent.
BOJ’s reduction in the overnight rate will make it less expensive for the commercial banks to borrow money, and it is expected that the lowered interest rates will be passed on to consumers.
According to the central bank, the decision reflects the Bank’s most recent assessment that inflation could fall below the lower limit of the 4.0 per cent to 6.0 per cent target in the latter half of 2019 and early 2020.
“There is also some risk that inflation could fall below 4.0 per cent at December 2018,” BOJ cautioned in a press release on Friday.
Too-low inflation raises the prospect of something worse — deflation, a broad decline in prices, pay and the value of stocks, homes or other assets. Deflation can further restrain spending and even tip an economy into recession.
As reported by the Statistical Institute of Jamaica, the inflation rate at November 2018 was 4.1 per cent, lower than the 4.7 per cent recorded at October 2018 and the 4.9 per cent at November 2017. However, projections in November placed inflation at the upper end of the 4.0 per cent to 6.0 per cent target by June 2019 and trend thereafter to the middle of the target range.
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