Economist predicts further BOJ interest rate hikes

 

The Bank of Jamaica's decision to raise its policy interest rate by 50 basis points to 6 per cent could be the beginning of a new rate-hiking cycle, with Economist Keenan Falconer expecting further increases in the coming months.

 

Mr. Falconer said while he had expected the bank to hold off for another quarter, he now believes a rate increase had become inevitable given the persistent inflationary pressures.

 

"I expect that the next decision will also be a rate hike, albeit less aggressively than the 50 basis points during this rate hike. And I think that 50 basis point hike sends a signal to the rest of the market that rates are going to go up pretty quickly in order to corral and contain inflation, which is their primary mandate that they have been tasked to adhere to," he noted.

 

He said the recent increase could also signal a return toward levels seen following the COVID-19 pandemic. 

 

I think we might see rates going back up to potentially what it did back then, which was around 7 per cent," he suggested.

 

"It means that interest rates on mortgages, car loans, other personal business loans could start to go up again. But that depends on the monetary transmission mechanism between the central bank and the commercial banks. Of course, the rate increases could take place very soon, if not immediately. And it's unlikely that the reverse would be true, where interest rates are going to start to come down very quickly if the Bank of Jamaica decreased rates. So there's always a saying that interest rates tend to take the elevator going up, but take the stairs coming back down," said Mr. Falconer.

 

The next policy interest rate decision by the BOJ is set for November 18.