Lending Rates Set to Soar After 8th Consecutive BOJ Hike | Main stories
The Bank of Jamaica (BOJ) on Thursday announced its eighth consecutive increase in the policy rate it pays on deposits deposited by deposit-taking institutions (DTIs) at the central bank, thereby raising lending rates for borrowers from the institutions. financial.
The 50 basis point increase to 6.0%, effective August 19, is the fifth rate increase this year.
The latest rate hike covers around 10 months of the BOJ raising the policy rate by a cumulative 550 basis points from 0.5%, where it had remained for more than two years from August 2019 to September 2021.
The previous seven policy rate hikes from September 2021 until June this year have been harshly rebuked by private sector umbrella groups, led by the Private Sector Organization of Jamaica (PSOJ), which have pointed to the effects deleterious effects of the rise in corporate interest rates. The PSOJ argued that businesses are still suffering from the negative effects of the coronavirus pandemic.
The BOJ has veered 350 basis points this year to the key rate of 2.5% at the start of 2022 and the end of 2021.
The latest rate hike comes despite the central bank noting inflation peaked earlier and lower than expected in April this year from 11.8% to 10.9% in May. and June, followed by 10.2% in July. He concluded that the decline in international commodity prices, the relative stability of the exchange rate and the rise in interest rates explain this trend.
The central bank continued to fend off criticism of its actions, underscoring its mandate to contain inflation within the target range of 4.0-6.0%, which has been exceeded since September last year, when the point-to-point inflation exceeded the ceiling level at 6.1 percent.
Following this break, the BOJ was quick to pull the monetary policy lever, after signaling in August 2021 its intention to raise rates the following month. This after headline inflation hit 5.3% in July 2021, slightly below 5.7% a year earlier at the height of pandemic restrictions.
The rate hikes accompanied other market intervention measures the central bank continued to mop up liquidity, it said in defense of the inflation target and foreign exchange market stability.
Reporting on the August 16-17, 2022 meetings of the BOJ’s Monetary Policy Committee (MPC), the central bank, in a document posted on its website at the close of business Thursday, noted that in addition to the rate increases, the MPC also agreed to continue to take other measures to contain the expansion of liquidity in Jamaican dollars and maintain relative stability in the foreign exchange market.
“The committee noted that the bank’s strong international reserves strengthen its ability to continue to support the foreign exchange market as needed. The MPC will continue to closely monitor the global and domestic economic environment and stands ready to suspend monetary policy tightening if incoming data continues to reflect a downward trend in inflation,” the BOJ report said.
The BOJ added that the latest measures are expected to lead to a further rise in interest rates on deposits and loans, making saving in Jamaican dollars more attractive compared to foreign currency assets and borrowing in Jamaican dollars more expensive.
“They should also reduce the demand for foreign currency, leading to a relatively more stable exchange rate. The measures are also intended to limit aggregate demand in the economy and therefore limit the ability of businesses to pass on price increases to consumers,” the MPC report said.