Jamaica's central bank cut its policy rate by 50 basis points to 5.75 percent, effective Feb. 25, saying the move was in light of the "generally weak economic conditions" and the government's recent approval of debt reduction measures.
"These factors will have a dampening effect on inflationary impulses," the Bank of Jamaica said in a statement from Feb. 22.
The cut in the policy rate - the rate payable on the Bank of Jamaica's 30-day Certificates of Deposit - is in line with the reduction in the rate on government securities on the National Debt Exchange.
"These actions have occurred against the background of a staff level agreement
between the Government and the International Monetary Fund on a medium-
term economic programme," the central bank said.
Earlier this month the IMF and Jamaica reached a staff-level agreement on a $175 million economic reform program aimed at cutting Jamaica's "unsustainable debt burden, which has undermined confidence and elevated risks to economic stability," the IMF said on Feb. 15.
The IMF's executive board will take a final decision on the agreement by the end of March, subject to the Jamaican government carrying out some of the agreed measures, including a debt exchange that involves private investors, fiscal tightening and structural reform.
"Over the last three decades, the Jamaican economy has experienced very low economic growth, declining productivity, and reduced international competitiveness," the IMF said, adding the high cost of servicing debt has limited the government's ability to provide services that are needed to achieve sustained rates of growth.
Jamaica's Gross Domestic Product rose by 0.2 percent in the third quarter from the second quarter for annual contraction of 0.2 percent, the same rate as in the second quarter.
In its latest quarterly monetary policy report, the Bank of Jamaica estimated that the economy contracted by up to 1.0 percent in the fourth quarter due to the impact of Hurricane Sandy, the postponement of some projects and weak global and domestic demand.
For the first quarter of 2013, the central bank forecasts an expansion of the economy by 0.0-1.0 percent following four consecutive quarters of decline. For the 2012/13 fiscal year, which ends March 30, the central bank forecasts Jamaica's GDP at minus 0.5 to plus 0.5 percent.
Jamaica's inflation rate rose to 8.4 percent in January from 8.02 percent in December and the bank forecast inflation in the first quarter of 2013 of 2-3 percent. For the 2012/13 fiscal year, inflation is forecast in a range of 7.5-9.5 percent, a level the bank described as in its "desired range."
Last month Fitch Ratings lowered Jamaica's credit outlook to negative, saying the sustained erosion of its international liquidity position had reduced the government's capacity to manage external and fiscal pressures.
Jamaica's net international reserves fell by $131.7 million to $125.6 million with gross reserves at $980.8 million at the end of December, representing 13.2 weeks of imports, according to the central bank.