The Bank of Jamaica (BOJ) has lowered its policy interest rate. This cautious adjustment brings the rate down by 25 basis points. It now stands at 5.50% per annum. The decision became effective on February 24, 2026. The Monetary Policy Committee (MPC) unanimously approved the change. This move signals growing confidence in Jamaica’s economic recovery.
Inflation Outlook Improves
The BOJ’s decision follows an improved inflation outlook. Annual headline inflation was 3.9% in January 2026. This is down from 4.5% in December 2025. Core inflation also decreased. It fell to 3.9% in January 2026 from 4.2% in December 2025. The Statistical Institute of Jamaica (STATIN) reported these figures.
Lower food prices contributed significantly to this decline. This was due to better agricultural supplies post-Hurricane Melissa. The exchange rate also saw mild appreciation. Inflation is now projected to trend within the BOJ’s target range. Possible temporary breaches may occur in June and September 2026. However, inflation should return to the 4.0 to 6.0 per cent target by December 2026. The BOJ now forecasts inflation to average 5.9% over the next two years. This is a reduction from a previous projection of 7.4%.
Economic Recovery Gains Pace
Jamaica’s economy shows signs of faster recovery post-Hurricane Melissa. The BOJ anticipates a full economic recovery within two to three years. This is faster than the initial estimate of three to four years. The improved outlook considers quicker rebounds in agriculture and utility services.
For fiscal year 2025/26, the economy is expected to contract by 1% to 3%. However, real GDP growth is projected for FY 2026/27. It is expected to be between 1% and 3%. This recovery will be driven by agriculture, mining, tourism, and electricity supply.
Exchange Rate Stability and Reserves
The Bank of Jamaica remains proactive in stabilizing the foreign exchange market. Following Hurricane Melissa, the bank sold approximately US$365 million into the market. This occurred between November 1, 2025, and January 31, 2026. The exchange rate has appreciated since November 2025. Strong foreign currency inflows, including remittances, also support this.
Jamaica’s international reserves are robust. They reached a historic high of US$6.8 billion by February 19, 2026. This level represents about 155.8% of the benchmark considered adequate. Reserves are projected to improve further.
Financial System Resilience
The domestic financial system has shown resilience. Deposit-taking institutions maintained strong capital adequacy. They demonstrated resilience ratios above potential market, credit, and liquidity risk scenarios.
Considerations and Future Outlook
The BOJ’s decision considered recent tax package announcements. The temporary suspension of the fiscal rule allows for larger government deficits for three years. This spending on recovery efforts could potentially pressure productive capacity. However, BOJ simulations suggest the tax package will not significantly derail the projected return of inflation to its target range. The MPC will continue monitoring incoming data closely. The news highlights Jamaica’s careful navigation of economic recovery.