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Jamaica: BOJ Cuts Rates A Second Time This Month

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The Bank of Jamaica (BOJ) yesterday cut the policy rate by 50bp to 9.0%, citing lower-than-expected May inflation and the recent strength of the Jamaican dollar. Yesterday’s move comes just two weeks after the BOJ’s 50bp rate cut to 9.50% on June 3. In a brief statement, the BOJ mentioned that the deceleration in May inflation to 0.6%m/m from 1.3% in April reinforces the likelihood that inflation will trend toward the lower bound of its target range of 7.5-9.5% at the end of FY10/11 (year ending March 31, 2011). Despite the downside surprise in May, we highlight that annual inflation remains elevated at 14.0%, and the acceleration in inflation from 10.2% in December, could limit the BOJ’s ability to cut rates further. None theless, the appreciation of the Jamaican dollar (+4.7%ytd) in the face of falling interest rates indicates increasing confidence among local players of a post-debt exchange macro environment of relatively low inflation, declining nominal interest rates, and a stable currency.Separately, the BOJ also mentioned that Net International Reserves currently stand at US$1.75 billion, which is above the benchmark set under the IMF SBA for end-June. (Neeraj)

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Written by jamarch