CONSUMER prices rose at their slowest annual pace in almost three-and-a-half years in November, paving the way for the Bank of Jamaica (BOJ) to implement its fourth straight rate cut to help reinvigorate the sluggish economy.

The consumer price index showed a 12-month inflation rate of 4.3 per cent after increasing by 1 per cent on the month, the Statistical Institute of Jamaica reported Monday. The rate is down from the 4.9 per cent it was in October and marks the third-straight month in which the annualised inflation rate has fallen. The 4.3 per cent annual rate recorded in November was also the slowest since a similar 4.3 per cent was recorded for the 12 months up to June 2021.

“With the US Fed likely to reduce rates by 25 basis points based on market sentiments and inflation coming in at 4.3 per cent which is a three-and-a-half-year low, and with the Jamaican economy slowing, I believe it would be prudent for the Bank of Jamaica to continue its loosening of monetary policy and reducing interest rates,” Keith Duncan, the newly appointed chairman of the Fiscal Advisory Commission (FAC), told Jamaica Observer.

Duncan made similar remarks on Friday, days ahead of the inflation report on Monday, during the final meeting of the now decommissioned Economic Programme Oversight Committee (EPOC), which has been replaced by the FAC.

“Inflation is trending in the right direction… so let’s hope the Bank of Jamaica will continue with their loosening of monetary policy and the reduction of interest rates,” Duncan said then, while stressing that the BOJ said reductions “will depend on incoming data”.

While the BOJ will be looking at the inflation numbers reported Monday, it will also have an eye on what the Federal Reserve, the US central bank, does at the end of its federal open market committee (FOMC) meeting on Wednesday given Jamaica’s significant economic ties to the United States. The US is Jamaica’s largest trading partner, accounting for 40 per cent of the island’s trade. Additionally, 40 per cent of Jamaica’s remittances come from the US, and three out of four tourists visiting Jamaica are from the US.

Economists in the US are expecting the Fed to reduce its benchmark rate, which affects many consumer and business loans, by a quarter-point to about 4.3 per cent. At that level, the rate would be a full point below the four-decade high it reached in July 2023. The policymakers had kept their key rate at its peak for more than a year to try to quell inflation, until slashing the rate by a half-point in September and a quarter-point last month.

The BOJ’s equivalent, its monetary policy committee (MPC), will start its own meeting Wednesday and Thursday before communicating a decision on Friday. Some experts predict the BOJ will cut its rate by a quarter percentage point to 6 per cent, the lowest it has been since August 2022.

Still, even though key policy rates which influence interest rates charged on everything from mortgages, car loans and credit cards are falling, the BOJ has expressed that it is frustrated that deposit-taking institutions (DTIs) are not following its lead. By cutting its policy rate, the central bank has been hoping that DTIs — commercial banks, building societies and merchant banks — would reduce their deposit and lending rates to encourage people and businesses to save less, borrow more and spend to stimulate economic activity, but that has not been happening so far.

“It’s early, and I expect that they will, so let’s see,” Richard Byles, governor of the BOJ, said in response to questions at the central bank’s monetary policy committee meeting about DTIs’ non-response to its rate cuts.

Byles, then, indicated that the central bank is considering measures to get the DTIs to cut rates after being frustrated that they were not raising rates nearly as quickly as he would have hoped, when the central bank was raising rates, to help quickly cauterise inflation that surged to a 13-year high of 11.8 per cent in April 2022.

“The committee also continued its discussion about potential initiatives and the deployment of policy tools to improve the efficiency of the monetary policy transmission. The committee again expressed concern about the slow pass-through of its monetary policy signals to deposit and lending rates. Since the recent reductions in the policy rate, survey data have shown that DTIs have not reacted in line with the Bank’s expectations,” the minutes of the MPC meeting in November show.

That is however in contrast to what is happening in the money market in which interest rates are already falling.

Following the policy announcement in September, short-term interest rates in Jamaica decreased in October 2024 due to an improved inflation outlook. Specifically, interest rates on government treasury bills and private money market rates fell significantly, ranging from 25 to 182 basis points.