Bank of Jamaica raises its rate to 6.00%, ending the long hold

The central bank lifted its policy rate 50 basis points to 6.00% on September 28, effective today, in a unanimous vote, its first move after months at 5.50%, as inflation stayed above target for a third straight month. It is the region's benchmark decision, and the signal is that the hold is over.

The Bank of Jamaica raised its policy rate by 50 basis points to 6.00%, a unanimous decision of the Monetary Policy Committee announced on September 28 and effective today. The move ends the long stretch at 5.50% and turns the region's most watched central bank toward tightening (Bank of Jamaica).

Inflation forced the move. Jamaica's August consumer prices rose 7.9% from a year earlier, with core inflation at 5.2%, holding above the four-to-six percent target band for a third consecutive month (STATIN). A central bank that had held its rate through hurricane damage and a soft growth outlook judged that persistent price pressure left no room to wait.

The decision carries beyond Kingston, because it came less than two weeks after the US Federal Reserve raised its own benchmark to a 3.75 to 4.00% range on September 16 in a unanimous 12 to 0 vote (Federal Reserve). With most Caribbean currencies pegged or tightly managed against the US dollar, a higher Fed rate squeezes every regional central bank that wants to avoid a widening gap, and the Bank of Jamaica's turn off the 5.50% hold reads as the region's benchmark answer.

The question now is how far the tightening runs. One 50 basis point step does not make a cycle, but the unanimity of the vote and the third straight month above band suggest the Bank is prepared to move again if inflation does not turn. The Ledger will track the next print and the December policy meeting.