The Bank of Jamaica (BOJ) raised its benchmark policy interest rate by 50 basis points to 6.0 per cent, effective Tuesday, September 29, to curb inflation amid rising uncertainty.

The bank's Monetary Policy Committee (MPC) took the decision unanimously at its meeting on September 24 and 25.

In a statement on Monday, the BOJ cited international conflicts and dry weather as the main factors behind the increase.

"…the escalation of tensions in the Middle East and the Russia-Ukraine conflict have resulted in a worsening of persistently high commodity prices consistent with the assumptions underpinning the bank's severe scenario. In addition, higher domestic agricultural inflation is likely to persist for a longer-than-projected period due to the intensification of the El Niño weather condition and its negative impact on crop yields," the central bank said.

The increase returns the policy rate to its highest level since March 2025, when it last stood at 6.0 per cent. Higher benchmark rates eventually push up lending rates and put pressure on riskier capital markets, as investors move to the safety of higher-yielding government securities.

"Global financial conditions have also tightened more rapidly than projected in the context of the prevailing elevated uncertainty," it added.

The committee judged that these developments would keep inflation pressures elevated for longer than originally expected, and that a rate increase was needed now to limit second-round effects, the BOJ said.

"This policy action will ensure that elevated inflation over the near term does not become further embedded in inflation expectations, thereby resulting in a protracted delay in the return of inflation to the target range."

Details of the major factors that informed the MPC’s decision are outlined below:

The Statistical Institute of Jamaica reported that headline inflation at August 2026 was 7.9 per cent, which is above the 7.5 per cent recorded at July 2026 and the 1.2 per cent recorded at August 2025.

The August 2026 outturn, while being below the bank’s most recent projection, represented the third consecutive month since May 2026 in which inflation exceeded the upper limit of the bank’s target range.

The higher headline inflation at August 2026 relative to the previous month mainly reflected the impact of drought conditions on agricultural prices, which adversely affected crop yields, particularly vegetables, as well as the pass-through of higher international commodity prices to petrol costs.

At August 2026, core inflation (which excludes the prices of agricultural food products and fuel from the Consumer Price Index) was 5.2 per cent, which is in line with the outturn at July 2026 but above the 4.2 per cent recorded at August 2025.

The higher core inflation relative to last year reflects emerging, though still limited, second-round effects on processed food and selected services. These second-round effects emanated from elevated domestic agricultural food prices and higher prices for imported commodities, particularly energy and transport.

Headline inflation is projected to continue rising over the near term before returning to the target range by mid-2027, depending 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 continues to reflect the impact of recent increases in international commodity prices on domestic energy and transport-related prices as well as increases in agricultural prices due to the El Niño weather phenomenon and its impact on crop yields.

Upward inflation impulses are also expected to result from increased domestic demand, associated with recovery spending by the Government of Jamaica and the normalisation of activity in selected sectors of the economy from the impact of Hurricane Melissa.

The risks to inflation over the next eight quarters continue to be skewed to the upside (which means that inflation could be higher than projected).

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. In the absence of today’s policy action by BOJ, a further rise in inflation expectations would likely have contributed to stronger second-round effects on inflation. In July 2026, businesses’ inflation expectations 12 months ahead increased to 7.3 per cent, from 6.7 per cent in June 2026. Further, businesses indicate likely wage pressures in the economy. Higher-than-projected prices for agricultural commodities because of worsened farm production conditions and reduced output resulting from higher-than-normal heat may also contribute to a worsening of inflation expectations. Higher inflation may also arise from a stronger-than-anticipated impact of increased domestic spending. On the downside, the effects of these factors on prices could be tempered by reduced demand resulting from weaker consumer purchasing power.

Global financial conditions are also tightening at a faster-than-projected pace.The Federal Reserve (Fed) increased the target range for the federal funds rate by 25 bps to 3.75 to 4.0 per cent in September 2026 due to higher inflation and uncertainty in the United States. Other major central banks have also increased rates. International reserves, however, remain healthy and continue to provide a strong buffer against the heightened geopolitical uncertainty by ensuring the availability of adequate levels of foreign exchange in the market. In this regard, the foreign exchange rate is expected to remain relatively stable.

The MPC remains committed to strengthening the policy transmission process and will deploy additional tools, if necessary, to contain second-round inflation pressures and return inflation to the target range in the shortest possible time.

The committee recognises that high and rapidly rising prices disproportionately affect vulnerable Jamaicans and impose significant costs on the broader economy. It, therefore, remains firmly focused on fulfilling its inflation-control mandate.

Follow The Gleaner on X, formerly Twitter, and Instagram @JamaicaGleaner and on Facebook @GleanerJamaica. Send us a message on WhatsApp at 1-876-499-0169 or email us at onlinefeedback@gleanerjm.com or editors@gleanerjm.com.