Jamaica's central bank cut its policy rate by a further 50 basis points to 2.0 percent, to "foster greater credit expansion and a faster pace of GDP growth which will support inflation returning to the target of 4.0 per cent to 6.0 percent."
The Bank of Jamaica (BOJ) has now cut its rate by 125 basis points this year and by 175 points since July last year when it adopted the overnight deposit rate as its new signal rate.
Jamaica's inflation rate decelerated further to 3.1 percent in May from 3.2 percent in April for the third month in a row of inflation below the central bank's target of 4 - 6 percent.
BOJ said its decision to boost monetary policy accommodation reflects its view that inflation from June to December is likely to remain below the target range and the earlier projected rise in inflation towards the centre of the target range by March 2019 is at risk.
In its previous policy decision from May, when it lowered the rate by 25 basis points, the BOJ forecast that inflation over the next three quarters would be slightly below the lower bound of the inflation target before rising towards the centre of the target in the following quarter.
BOJ's view on inflation for the rest of this year is largely predicted on continued weak domestic demand, which is constrained by tight fiscal policy and "increase uncertainties about global trade."
In addition, BOJ is also expecting agricultural food prices to remain low for longer than expected and the possibility that oil prices could be lower than projected.
"In the medium-term, the Bank's outlook for inflation continues to reflect a sluggish recovery in economic activity (real GDP)," BOJ said.
Jamaica's inflation rate has decelerated due to a rapid fall in in agricultural food and electricity prices.
Earlier this month the International Monetary Fund (IMF) noted the decline in Jamaica's inflation rate to below the BOJ's target range and lent its support to the recent rate cuts and its "resolve to cut interest rates further, if needed to steer inflation towards the mid-point of the central bank's target range."
The IMF team also welcomed the progress being made by authorities in revising the central bank act, which it said would be critical to a full shift to inflation target and the related work to strengthen central bank communications.
The Bank of Jamaica released the following statement:
"Bank of Jamaica announces its decision to lower the policy rate (the interest rate offered on overnight placements with Bank of Jamaica) by 50 basis points to 2.00 per cent, effective 28 June 2018.
In March, April and May 2018, inflation fell below the lower end of the Bank’s inflation target of 4.0 per cent to 6.0 per cent.
Core inflation (measured by changes in the CPI excluding agriculture and fuel) has also been low, in the region of 2.0 per cent to 3.0 per cent. The main factors that contributed to inflation being lower than the target included a stronger-than-anticipated recovery in agricultural supplies following adverse weather shocks in 2017, lower-than-forecasted imported inflation (associated with an appreciation in the Jamaican dollar over the year to April 2018 and a reduction in the pass-through of oil prices to inflation) and weaker-than- anticipated domestic demand.
Bank of Jamaica’s decision to increase monetary policy accommodation reflects its assessment that (i) inflation over the June 2018 to December 2018 quarters is likely to remain below the target of 4.0 per cent to 6.0 per cent and (ii) the previously projected increase in inflation towards the centre of the target in the March 2019 quarter is at risk.
The Bank’s view on inflation for the remainder of 2018 is largely predicated on expectations for continued weak domestic demand, which is being constrained by tight fiscal policy and increased uncertainties about global trade. The assessment also reflects the expectation for agricultural food prices to remain low for longer than previously anticipated and the possibility that international oil prices could be lower than previously projected. In the medium-term, the Bank’s outlook for inflation continues to reflect a sluggish recovery in economic activity (real GDP).
The decision to loosen the policy stance is aimed at fostering greater credit expansion and a faster pace of GDP growth which will support inflation returning to the target of 4.0 per cent to 6.0 per cent.
The next policy decision announcement date is 28 August 2018"
In March, April and May 2018, inflation fell below the lower end of the Bank’s inflation target of 4.0 per cent to 6.0 per cent.
Core inflation (measured by changes in the CPI excluding agriculture and fuel) has also been low, in the region of 2.0 per cent to 3.0 per cent. The main factors that contributed to inflation being lower than the target included a stronger-than-anticipated recovery in agricultural supplies following adverse weather shocks in 2017, lower-than-forecasted imported inflation (associated with an appreciation in the Jamaican dollar over the year to April 2018 and a reduction in the pass-through of oil prices to inflation) and weaker-than- anticipated domestic demand.
Bank of Jamaica’s decision to increase monetary policy accommodation reflects its assessment that (i) inflation over the June 2018 to December 2018 quarters is likely to remain below the target of 4.0 per cent to 6.0 per cent and (ii) the previously projected increase in inflation towards the centre of the target in the March 2019 quarter is at risk.
The Bank’s view on inflation for the remainder of 2018 is largely predicated on expectations for continued weak domestic demand, which is being constrained by tight fiscal policy and increased uncertainties about global trade. The assessment also reflects the expectation for agricultural food prices to remain low for longer than previously anticipated and the possibility that international oil prices could be lower than previously projected. In the medium-term, the Bank’s outlook for inflation continues to reflect a sluggish recovery in economic activity (real GDP).
The decision to loosen the policy stance is aimed at fostering greater credit expansion and a faster pace of GDP growth which will support inflation returning to the target of 4.0 per cent to 6.0 per cent.
The next policy decision announcement date is 28 August 2018"
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