Introduction
Good morning, ladies and gentlemen of the media, and thank you for joining us at short notice. Clear and predictable communication is especially important while inflation remains elevated and economic conditions continue to affect households, businesses and the wider economy.
Monetary Policy Decision
The Monetary Policy Committee (MPC) increased the policy rate by 50 basis points to 6.0 per cent per year, effective 29 September. The Committee judged that temporary supply shocks have persisted and begun to generate second-round effects, requiring a stronger monetary policy response to safeguard price stability.
As noted in the press release, the Committee held the policy rate at 5.50 per cent in August because inflation was driven primarily by temporary external and administrative factors. That assessment was appropriate at the time. Since then, persistently elevated energy and transport costs, sustained agricultural inflation and increased import demand associated with post-hurricane rebuilding, have extended inflation beyond the horizon of a typical supply disturbance. Continuing to look through these shocks could allow temporary pressures to become entrenched and undermine the credibility of our commitment to price stability.
Since August, escalating tensions in the Middle East and the RussiaUkraine conflict have heightened geopolitical uncertainty, disrupted global trade and supply chains, and sustained upward pressure on energy and other international commodity prices, consistent with the assumptions in the Bank’s severe scenario.
Domestic agricultural inflation is also expected to persist longer than projected as intensifying El Niño conditions reduce crop yields and push prices higher.
Global financial conditions have tightened faster than projected amid elevated uncertainty. In September 2026, the US Federal Reserve raised the federal funds rate target range by 25 basis points to 3.75–4.0 per cent in response to higher inflation and uncertainty in the United States. Other major central banks have also increased their policy rates.
The MPC therefore assessed that inflationary pressures will persist longer than previously anticipated.
While monetary policy cannot eliminate supply shocks, it must respond when they threaten to generate persistent inflation or destabilise expectations. The Committee therefore judged that urgent action was needed to limit second-round effects, prevent inflation expectations from becoming further embedded and avoid a protracted delay in returning inflation to the target range.
I will now outline the additional factors that influenced the decision, beginning with the latest domestic inflation outturn.
Inflation Outturn & Outlook
Headline inflation increased to 7.9 per cent in August, up from 7.5 per cent in July and 1.2 per cent a year earlier.
Core inflation was 5.2 per cent in August, which was in line with the outturn at July 2026 but above the 4.2 per cent recorded at August 2025.
While the outturn was below the Bank’s most recent projection, it represented the third consecutive month since May 2026 in which inflation exceeded the upper limit of the Bank’s target range.
The increase in inflation in August mainly reflected two factors: drought-related damage to crop yields, particularly for vegetables, and the pass-through of higher international commodity prices to petrol costs.
The MPC expects inflation to rise further in the near term before returning to the target range by mid-2027. The timing will depend on the duration of the conflicts in the Middle East and between Russia and Ukraine.
Core inflation is also expected to trend above the Bank’s target range over this period, particularly if the severe scenario for geopolitical tensions persists.
The inflation outlook reflects higher domestic energy and transportrelated prices arising from recent increases in international commodity prices, as well as higher agricultural prices associated with El Niño’s impact on crop yields.
Domestic demand is also expected to add to inflation as Government recovery spending increases and activity in sectors affected by Hurricane Melissa normalises. The Bank nevertheless shares concerns about weak growth in the near term.
Recent Economic Developments
Selected indicators point to improving demand as Jamaica gradually recovers from Hurricane Melissa. Growth in fiscal year 2026/27 nevertheless remains vulnerable to the agricultural supply shock, constraints on tourism capacity and mining-related issues. Growth is expected to strengthen in 2027/28 as these constraints ease and reconstruction gathers pace.
Turning to the external accounts, the escalation of geopolitical tensions is expected to weigh on Jamaica’s balance of payments through higher import costs. Tourism inflows are also projected to be lower relative to prior years due to capacity constraints. Meanwhile, Jamaica’s foreign exchange market has remained relatively stable. As at the 24th of September, the exchange rate had appreciated by 1.1 per cent year-over-year, compared with a 1.9 per cent depreciation a year earlier.
Over the 12 months to end-August, the Bank sold US$1.1 billion via the Bank of Jamaica Foreign Exchange Intervention Trading Tool (B-FXITT), broadly in line with the previous year, while purchasing US$803.4 million more than it sold.
Gross international reserves remain healthy at US$6.6 billion as at the end of August, equivalent to 143.9 per cent of the adequacy measure, providing a strong buffer against heightened geopolitical uncertainty and supporting adequate foreign exchange availability and relative exchange-rate stability.
Risks
Notwithstanding these developments, the current risks to the economic outlook require continued vigilance, sound policy judgement and decisive action.
Inflation risks over the next eight quarters remain tilted to the upside, meaning inflation is more likely to exceed the forecast than fall below it.
The main upside risk is a stronger-than-projected pass through of rising international commodity prices to domestic prices, due to more protracted geopolitical tensions.
Domestic risks are also rising. Businesses’ 12-month-ahead inflation expectations increased to 7.3 per cent in July 2026 from 6.7 per cent in June, while businesses expect wage pressures to add to inflation. If higher costs become embedded in wages and prices across the economy, second-round inflation could intensify.
Consumers will face higher agricultural prices as El Niño-related heat worsens farm production conditions and reduces output, potentially raising inflation expectations.
Higher inflation may also arise from a stronger-than-anticipated impact of increased domestic spending.
On the downside, weaker consumer purchasing power could temper demand and moderate price pressures.
Conclusion
Bank of Jamaica remains firmly committed to its primary mandate of price stability.
The Bank recognises that higher food, transport and energy costs directly affect Jamaican households, while businesses face higher input and operating costs. The MPC acted decisively to protect purchasing power and prevent inflation from taking hold. Price stability is the foundation of Jamaica’s economic resilience.
In the coming months, the MPC will assess incoming data, inflation expectations and global and domestic developments. If upside risks materialise or expectations move further from the target, the Committee stands ready to act. We will do what is necessary to return inflation to the target range and safeguard Jamaica’s economic stability.
Thank you.