BoJ holds rate at 5.50 percent as Mideast tensions fuel inflation

The Bank of Jamaica's Monetary Policy Committee (MPC) unanimously decided to keep the policy rate unchanged at 5.50 percent per year at its meeting last week.

This decision reflects the Bank's assessment that the current policy stance remains appropriate to help limit second-round effects from external price shocks and support inflation within the target range of 4.0 to 6.0 percent over the medium term.

Geopolitical tensions in the Middle East have significantly heightened, causing extensive damage to oil and gas infrastructure and disrupting shipping in the Strait of Hormuz.

This global shock has increased the risk of Jamaica's headline inflation rising beyond the 4.3 percent recorded in April.

The MPC also committed to continuing special measures to preserve foreign exchange market stability, including direct supply to the energy sector and pre-announcement of B-FXITT flash sale interventions.

Real GDP is anticipated to decline by 1.0 to 2.0 percent for FY2025/26, before a projected recovery to 1.0 to 3.0 percent growth in subsequent years.

Jamaica's inflation is forecast to trend upward over the June and September 2026 quarters, likely exceeding the 6.0 percent upper limit of the Bank's target range.

This surge is primarily driven by increased energy and transport-related inflation from rising crude oil prices, alongside second-round impacts on other goods and services.

Post-hurricane reconstruction efforts, leading to higher domestic spending, further contribute to these pressures.

The risks to this inflation forecast are skewed to the upside, with an extended Middle East conflict or adverse weather conditions like El Niño posing significant threats.

Gross international reserves remained robust at US$6.5 billion as of May 19, 2026, providing a crucial buffer against external shocks.

The domestic financial system remains sound with adequate capital and liquidity.