Central Bank Rate Cuts of 25 Basis Points in Jamaica, Indonesia and Iceland – Currency Thoughts

Central Bank Rate Cuts of 25 Basis Points in Jamaica, Indonesia and Iceland

May 21, 2025

The Bank of Jamaica implemented its fifth 25-basis point reduction since last August. The new rate level of 5.75% contrasts with 7.0% maintained previously from November 2022. The vote to undertake this latest cut was unanimous and, according to a statement, justified because inflation has been inside its 4-6% target since last September and is projected to remain so in both 2025 and 2026. Caution is nonetheless advised. America’s confrontational tariff policy skews the risks to the central bank’s inflation outlook to the upside.

Bank Indonesia’s policy interest rate has been reduced to 5.5%, its lowest level since January 2023, despite an acceleration of Indonesian consumer price inflation to an 8-month high of 1.95% in April from 1.03% in March. This third 25-basis point reduction since last September, according to officials, will not imperil three broad goals of monetary policy: keeping inflation within a 1.5-3.5% corridor, maintaining a stable exchange rate, and promoting sustainable economic growth. The rupiah, like many currencies, had strengthened noticeably against the dollar during May.

The Central Bank of Iceland is the third monetary authority to cut its interest rate today. The new 7.5% level is its lowest in a year and down from a peak of 9.25% maintained for 13 months until early October 2024. Icelandic CPI inflation of 4.2% last month was six percentage points lower than its peak in February 2023 but still above the central bank medium-term target of 2.5%. Hence, a released statement adopts a cautious tone regarding future easing:

Wage costs have con­tin­ued to rise briskly, and while in­fla­tion ex­pect­a­tions have fallen, they re­main above tar­get. Al­though in­fla­tion has eased and in­fla­tion ex­pect­a­tions have fallen in the re­cent term, in­fla­tion­ary pres­sures re­main. The con­di­tions that would en­able an eas­ing of the real in­terest rate have there­fore not yet emerged. Fur­ther in­terest rate cuts will de­pend on whether in­fla­tion moves closer to the Bank’s 2½% tar­get.

Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Bank Indonesia, Central Bank of Iceland, Central Bank of Jamaica

ShareThis

This entry was posted
on Wednesday, May 21st, 2025 at 7:44 am and is filed under Uncategorized.
You can follow any responses to this entry through the RSS 2.0 feed.