BOJ hikes interest rate to 4%, its largest adjustment yet
Published:Saturday | February 19, 2022 | 9:34 AM
Bank of Jamaica, BOJ, has hiked its policy to 4.0 per cent, its fourth and most dramatic adjustment to date.
Amid rising inflation that's running well beyond the bank's target range, BOJ on Friday increased the rate on overnight deposits held at the central bank by an accelerated 150 basis points, from 2.5 per cent to 4.0 per cent.
The new rate takes effect on Monday, February 21.
It will also be pursuing stronger measures to contain liquidity in defence of the Jamaican dollar, which is trading at around $156 to $157 to the USD, and to maintain stability in the foreign exchange market.
“Underlying demand pressures may also begin to threaten the stability of the foreign exchange market and, with it, diminishing the prospects of inflation returning to the target range,” the central bank said.
BOJ announced the measures following a meeting of the Monetary Policy Committee, which convened for two days of deliberations, February 16-17, after Statin announced the January inflation data.
The committee cited the annual inflation rate, which hit a new high of 9.7 per cent, saying that without policy interventions, it would continue to breach the 4 to 6 per cent target range for up to another year.
The central bank noted that while shipping and commodity prices had shown signs of decline in early December, the past increases had a “stronger than projected” impact on local consumer prices, and therefore inflation.
The BOJ policy rate had remained at a record low of 0.5 per cent for several years until the pandemic, which took a heavy toll on business, jobs, and the economy.
To restrain prices, the central bank initially increased its policy rate by 100 basis points last September, followed in subsequent months with two adjustments of 50 basis points each, and now a fourth by 150 basis points.
The first three adjustments have led to rate increases in the money markets, with investors demanding higher returns, however, BOJ also indicated that it has seen signs of restraint in the banking sector.
“In the wake of past monetary policy adjustments, while interest rates in the money markets have increased at a faster pace than Bank of Jamaica’s policy rate, banks remained relatively liquid and, for the most part, have not passed on the policy rate increases to their customers who hold deposits with them,” said the central bank.
“In this context, banks have also only marginally increased loan rates.”
Its next rate decision is scheduled for release on March 29.