The Bank of Jamaica (BOJ) projects that the US dollar will remain largely stable against Jamaica’s major trading partners over the next two years, though the central bank stopped short of offering a definitive outlook for the local currency.
In its quarterly monetary policy report released on Tuesday, the BOJ said it expects the US currency to be “relatively unchanged” on a trade-weighted basis through to the end of 2027. The forecast carries a subtle caveat, however – several factors could still exert downward pressure on the greenback in the months ahead.
The Jamaican dollar traded at $157.04 to US$1 on Wednesday, stronger than the annual weighted average exchange rate of $159.83 in 2025 and $157.22 in 2024. Looking wider, the US dollar depreciated against Jamaica’s major trading partners, including Canada, the United Kingdom and the Eurozone in 2025 by some 9.4 per cent – its worst performance since 2017, according to data from US Bank.
The BOJ indicated that “weaker labour market conditions which may erode consumer and business confidence” could weigh on the dollar, along with the “continued normalisation in Fed rates”. The BOJ anticipates that the Federal Reserve will reduce rates in the March 2026 quarter by an additional 25 basis points, with rates held thereafter – a move that would typically diminish the dollar’s yield appeal. Uncertainty surrounding US trade policies adds another layer of complexity, potentially buffeting the currency even as the official forecast points to stability.
The measured outlook arrives as Jamaica confronts a far more dramatic economic narrative at home. Hurricane Melissa, which struck last October, has inflicted damage estimated at more than 40 per cent of gross domestic product (GDP). For fiscal year 2025-26, the BOJ anticipates a decline in real GDP in the range of 1.0 to 3.0 per cent.
The storm’s impact has reshaped the inflation landscape. Headline inflation stood at 4.5 per cent in December 2025, falling to 3.9 per cent by January 2026 – below the lower limit of the BOJ’s four to six per cent target range – driven by a faster-than-expected recovery in agricultural supplies. The central bank now projects average inflation will rise to 5.9 per cent over the next two years, up from 4.6 per cent in the previous two-year period. Officials expect inflation to temporarily breach the upper limit of the target range during the June and September 2026 quarters, before returning to the four to six per cent range by the end of the December 2026 quarter.
The primary inflation risk is distinctly local: the Government’s temporary suspension of fiscal rules to fund reconstruction. These deficits, the BOJ warned, could “place pressure on the country’s productive capacity and contribute to higher second-round price pressures”, potentially keeping inflation expectations elevated even as global currency markets remain in flux.
steven.jackson@gleanerjm.com
