JAMAICA-Bank of Jamaica holds policy rate amidst higher hurricane-related inflation risk.

KINGSTON, Jamaica, CMC – The Bank of Jamaica (BOJ) has expressed concern that the impact of Hurricane Melissa on the economy was more pronounced than initially anticipated, heightening the risk that inflationary pressures could be larger.

Hurricane Melissa slammed into Jamaica on October 28, killing at least 45 people and leaving damage in excess of nine billion US dollars.

The BOJ said that its Monetary Policy Committee (MPC) met this week and that more recent estimates indicate that damage to roads, buildings, the electricity grid, and other infrastructure exceeds 40 per cent of gross domestic product (GDP), up from the previous estimate of 30 per cent.

The BOJ said the agriculture sector suffered damage equivalent to approximately 50 per cent of its 2024 GDP.

“The larger damage means that the initial impact on agriculture and electricity prices, as well as the later effect on the prices of other goods and services – the second-round impact – of this initial price jump, is likely to be stronger and more persistent than initially anticipated. As a result, the upside risk of the disaster on the inflation outlook is greater, meaning that inflation could be higher than forecast.”

The BOJ said that against this background, the MPC decided unanimously to continue holding the policy rate, which is offered to deposit-taking institutions (DTIs) on their current account balances at the BOJ, at 5.75 per cent per annum, and to remain proactive in preserving relative stability in the foreign exchange market.

It said that the decision to continue holding the policy rate at this time is based on several factors, including annual headline inflation, which will rise sharply over the next few months from 4.4 per cent in November 2025 and remain elevated for the near term.

In this context, inflation will exceed the Bank’s target range of 4 to 6 per cent by early 2026.

“This rise primarily reflects the hurricane’s impact on the major food-producing parishes and disruptions to supply chains – particularly in energy and agriculture -, which monetary policy cannot affect.”

The BOJ said that core inflation, which excludes the prices of agricultural food products and fuel from the consumer price index (CPI), will also rise over the next 12 months, reflecting another wave of price increases for other goods and services, such as those related to home repairs, meals from restaurants, and personal care items, through second-round price effects.

The BOJ said that it is therefore positioning monetary policy to minimise such effects and to constrain inflation expectations. It said the higher core inflation will be supported by the anticipated surge in overall spending in the context of the rebuilding efforts, primarily facilitated by external financing to the private and public sectors.

In the aftermath of the Hurricane, Parliament has suspended the fiscal rule for an initial period of one year, and the BOJ said that this will support the public sector’s ability to increase spending for the recovery and relief effort.

“For the central government, in particular, larger fiscal deficits are projected over the next three fiscal years, compared with their previous projection.”

The BOJ said the risks to the inflation outlook are skewed to the upside, with a greater likelihood that inflation will exceed projections.

It said that higher-than-expected demand amid reconstruction efforts and rising inflation expectations could lead to higher inflation.

“A more protracted recovery in the agriculture sector and more prolonged disruptions to supply chains could worsen food price increases. There could also be long-term damage in specific industries, slowing improvements in production and supply availability.

“On the downside, inflation could be lower due to a slower-than-anticipated recovery in domestic demand associated with income loss.”

The Statistical Institute of Jamaica reported that annual headline inflation in November 2025 was 4.4 per cent, above the BOJ’s projections and the 2.9 per cent in October 2025.

The higher headline inflation compared with October was mainly due to higher food prices, reflecting early signs of the Hurricane’s impact on the agriculture sector. Core inflation was 4.3 per cent in November 2025, up from 3.7 per cent in October 2025.

Economic activity will contract significantly in the immediate aftermath of the Hurricane. In this context, the BOJ said it anticipates a decline in real GDP in the range of minus four to six per cent for fiscal year 2025/26, mainly due to the extensive damage to infrastructure and disruption to productive activity.

BOJ projects that the financial inflows from multilateral and private sources will support spending in the economy over the next three years, to the extent that the capacity exists to execute planned projects.

It said that for the financial year 2026/27, real GDP growth is projected to be in the range of minus one to one per cent, reflecting the commencement of recovery efforts, which will escalate in the ensuing years.

It said that although Jamaica’s current account in its balance of payments is projected to deteriorate over the near term, international reserves will remain robust.

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