JAMAICA | BOJ Holds Steady: Governor Byles Explains Why 1.2% Inflation Doesn’t Mean Rate Cuts

Central Bank maintains 5.75% policy rate despite inflation falling well below target range

(WiredJA) Despite headline inflation plummeting to just 1.2 per cent in August—well below the Bank of Jamaica’s 4-6 per cent target range—Governor Richard Byles says the central bank’s decision to hold the policy rate steady at 5.75 per cent is the right move for Jamaica’s economic stability.

Speaking after the Monetary Policy Committee’s September meetings, Governor Byles emphasized that the dramatic drop in inflation tells a story of temporary supply improvements rather than economic weakness—and that’s a crucial distinction.

“What we’re seeing is not a demand problem, it’s a supply story,” Byles explained. “Hurricane Beryl devastated our agricultural sector last year, sending food prices soaring. Now that crops have recovered and supplies have normalized, those prices are naturally coming back down. That’s good news, not a cause for alarm.”

The Governor pointed to core inflation—which strips out volatile food and fuel prices—as the more reliable indicator of the economy’s true health. At 4.2 per cent, core inflation remains comfortably within the target range and has done so since March 2025.

“Core inflation is exactly where we want it to be,” Byles noted. “It tells us the underlying economy is healthy and balanced. When we look at the fundamentals—a tight labor market, rising wages, and economic growth between 3 and 4 per cent this quarter—we see an economy that’s firing on all cylinders.”

The MPC’s decision also factored in two other one-off events that temporarily suppressed headline inflation: the fading impact of earlier transport fare adjustments and the Government’s March 2025 decision to reduce the General Consumption Tax on electricity consumption.

“These are transitory factors,” the Governor stressed. “By March 2026, we expect headline inflation to return to our target range as these temporary effects dissipate. Cutting rates now in response to temporary price movements would be policy-making in the rear-view mirror.”

But Governor Byles was quick to acknowledge that the inflation outlook isn’t without risks—and those risks are tilted toward higher, not lower, inflation ahead.

“We’re watching developments in the United States very carefully,” he said. “There’s potential for sharper-than-anticipated tariff increases on US trading partners, which would mean higher costs for imported goods. We’re also monitoring geopolitical tensions that could disrupt international supply chains. These are upside risks we cannot ignore.”

The Governor highlighted that Jamaica’s macroeconomic environment remains stable, with healthy international reserves and a current account surplus projected for the near term. Importantly, as interest rates abroad continue to decline, Jamaica’s relatively stable domestic rates have improved the interest rate differential—a positive development for foreign exchange stability.

“The domestic banking system is sound, with adequate capital and liquidity,” Byles added. “Our fiscal policy poses no near-term inflation risk. We’re in a strong position.”

Asked about the seeming contradiction between maintaining rates while growth accelerates, the Governor was philosophical: “Monetary policy isn’t about chasing every wiggle in the data. It’s about maintaining a stable, predictable environment that allows businesses to plan and invest. Right now, that means holding steady.”

The MPC’s unanimous decision also reflects heightened vigilance. “We’re maintaining close surveillance of core inflation relative to the lower bound of our target range,” Byles said. “If we see sustained weakness there, we’ll adjust. But right now, the data supports patience.”

Looking ahead, the Governor reaffirmed the central bank’s commitment to its mandate. “Our job is to maintain low and stable inflation, and we’ll continue monitoring incoming data and adjusting policy accordingly. We’re data-dependent, not calendar-dependent.”

With economic growth projected between 1 and 3 per cent for FY2025/26, driven by expansions in agriculture, mining, and tourism, Governor Byles expressed cautious optimism about Jamaica’s economic trajectory—even if that means holding rates steady while inflation temporarily undershoots the target.

“Sometimes,” he concluded, “the right decision is to do nothing—and do it with confidence.”