BOJ seeing Jamaica’s external accounts coming under severe pressure

Elevated inflation in the near term with exchange rate remaining relatively stable

Durrant Pate/Contributor

The Bank of Jamaica (BOJ) is ringing the warning bell that the country’s Balance of Payments is coming under severe pressure from global uncertainty, including the Iran/USA and Israel war.

Addressing the BOJ’s quarterly briefing in Mandeville today, outgoing Governor Richard Byles declared, “The negative impact of the conflict on the country’s external accounts is projected to be significant, with the current account balance expected to deteriorate over the near-term. This deterioration will be largely underpinned by higher imported fuel prices and increased importation to facilitate the economy’s infrastructure rebuild post Hurricane Melissa.” 

He highlighted that in addition, “the deterioration reflects the adverse impact of Hurricane Melissa on the tourism industry. In this context, the Bank anticipates that the current account balance will fall within a range of a deficit of 0.5 per cent of GDP to a surplus of 0.5 per cent for FY2025/26, compared with a surplus of 3.0 per cent of GDP recorded in FY2024/25.”

Stable exchange rate

However, he had some positive news in that, despite the temporary falloff in tourism earnings so far, the foreign exchange market has remained relatively stable. As at May 19, 2026, the exchange rate had appreciated on a year-over-year basis by 0.5 per cent, compared with a depreciation of 1.7 per cent a year earlier. 

This stability, the BOJ Governor explained, occurred in the context of the bank’s continued actions to reduce volatility in the foreign exchange market as part of its strategy to lower inflation expectations and contain inflation within its target range. Cumulatively, BOJ sold US$1.3 billion via its BFXITT facility over the 12 months to end-April 2026, which is US$200 million more than the US$1.1 billion sold over the previous 12 months. 

Notwithstanding these sales, the BOJ purchased US$906.4 million more than it sold in the 12 months to April 2026. As a result, Jamaica’s gross international reserves have also remained robust, standing at US$6.5 billion at May 19, 2026, representing about 139.6 per cent of the measure considered adequate. 

This strong level of reserves, Governor Byles said, provides an important buffer against external shocks. Going forward, the BOJ boss, who will be departing soon, believes, “Jamaica’s foreign reserve levels are expected to remain adequate over the medium term and will support the orderly functioning of the foreign exchange market, helping to limit volatility and thereby containing imported inflation.” 

Also, on the positive front, the domestic financial system remains sound with adequate capital and liquidity.

Inflation will remain elevated

Based on the BOJ’s forecast, inflation in Jamaica is to trend upward over the June and September 2026 quarters beyond the 6.0 per cent upper limit of the BOJ’s 4%-6% target range. This will be mainly driven by supply and cost pressures such as increased energy and transport-related inflation due to rising crude oil prices and the second-round impact of higher energy-related inflation on the prices of other goods and services.

This is coupled with higher spending related to post-hurricane reconstruction efforts. Second-round price increases are most likely in areas such as routine household maintenance costs as well as in the prices of food and personal care items.

The BOJ Governor emphasised, “the extent of the breach of the inflation target range will depend on the severity and duration of the Middle East conflict. Those variables are highly uncertain. As geopolitical tensions ease and global oil supplies return to normal levels, headline inflation in Jamaica is forecast to gradually moderate and return to the target range.”