By Javaughn Keyes

The Bank of Jamaica's Monetary Policy Committee, has decided to increase the cash reserve requirement applicable to deposit taking institutions.

The committee has also decided to maintain the policy interest rate at 7 per cent.

Effective the 1^stof April, one percentage point will be added to the domestic and the foreign currency cash reserve requirements.

Currently, deposit taking institutions are required to hold a minimum of 5 per cent of their Jamaican dollar-denominated prescribed liabilities and 13 per cent of their foreign currency-denominated prescribed liabilities as cash reserves at the central bank.

These prescribed liabilities include deposits, funds borrowed from other institutions and the interest on these debts.

The committee says the additional liquidity control measure is another tool it expects will help slow inflation.

Meanwhile, the central bank's Monetary Policy Committee (MPC) has held the policy interest rate at 7 per cent. The MPC also decided to maintain the rate offered to deposit taking institutions on overnight placements, as it says the inflation outlook remains generally favourable. It noted however that risks to inflation remain high.

The BoJ says core inflation, which excludes food and fuel prices, fell to 7.1 per cent in January 2023.

According to the MPC, the pace of monetary tightening by the US Federal Reserve Board also appears to be slowing, which has factored into the Jamaican monetary policy decision.

The MPC says the next decision, which is due on March 29, will depend on inflation conditions and the Committee seeing more international commodity price reductions coming into domestic prices. It says the fed continuing to slow its policy rate increases will also be factored.

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QUESTION 1

a. Outline three (3) economic functions that the Bank of Jamaica (BOJ) performs.

b. Outline the kind of macroeconomic policy measure employed by the Central Bank when it increases the "cash reserves" for commercial banks. Justify your response. c. Suggest, with explanation, one (1) macroeconomic policy measure that could be used by the BOJ to achieve the same result.

d.Use the data in the following Table to calculate the 12-month point-to-point inflation (i.e. August 2020 to August 2021).

Jamaica's Consumer Price Index (CPI) August 2020 to August 2021
Month	CPI
August2020	252.8
September2020	255.6
October2020	257.4
November2020	257.4
December2020	254.7
January2021	254.2
February2021	254.3
March2021	256.5
April2021	256.8
May2021	258.8
June2021	258.4
July	261.2
August2021	263.1

e. Use the data in the Table above to define deflation and list the month(s) where deflation occurred.