3 months ago
14
Following a further reduction in its policy rate, the Bank of Jamaica, BOJ, is again urging commercial banks to reduce their lending rates to their customers.
The BOJ has lowered the cost of short-term borrowing for commercial banks by 25 basis points, from 6.0 per cent to 5.75 per cent, effective Wednesday. The policy rate is the rate offered to deposit-taking institutions on their overnight placements at the central bank. It operates as the benchmark that influences borrowing costs in the economy.
BOJ Governor Richard Byles said the latest rate decision was “set against a backdrop of a rapidly changing policy landscape in the United States and the global economy, which has implications for Jamaica’s economic prospects”.
Cumulatively, the central bank has cut its policy rate by 125 basis points since last year, coming from seven per cent.
Byles said at his quarterly monetary policy press briefing on Wednesday that he is concerned that commercial banks have been slow in adjusting their lending rates in concert with the BOJ. He plans to meet with the banks to gain a better understanding of the reason for the slow change.
“We are working to have the situation fixed, but it takes a little while to get what needs to be done to make that transmission system more responsive,” said the central bank governor.
“We will certainly be expressing to the banks that this rate cut, which is coming even before the Fed has given consideration to a cut, that we see this as a signal, a powerful signal to them that we want rates to chug down, to come down,” Byles asserted. He was referencing the Federal Reserve, which is America’s central bank.
Noting that many loans from the commercial banks were issued at fixed rates when the BOJ policy rate was elevated, Byles said such borrowers now deserve some relief from the high borrowing costs that are currently locked into.
“Those customers, I think, are eligible for a review of their rates because we have cut rates now, cumulatively, by one and a quarter per cent from the high of seven per cent,” he said.
“The Bank of Jamaica has cut one and a quarter per cent. You should be in a position to make a cut also,” Byles declared.
In relation to the central bank’s outlook, the BOJ chief said that within the context of the new global environment, the incoming economic data on Jamaica continues to point to a stable domestic economy, with inflation remaining in the BOJ’s four to six percent target range.
The latest inflation report from Statin estimated annual inflation at 5.3 per cent in April, within the central bank’s target range of 4.0 to 6.0 per cent.
Additionally, core inflation, which excludes the prices of agricultural food products and fuel from the consumer price index, was at 4.4 per cent in April, remaining below six per cent since July 2023.
Byles also noted as at May 14, the foreign exchange rate had depreciated by 1.9 per cent, year-on-year.
“There was a mild uptick in the pace of depreciation between the end of April and early in the year, in the context of an increase in demand and a build-up of foreign exchange positions by authorised dealers,” the BOJ governor reported.
In response, BOJ pumped foreign currency into the market, with Byles noting that the central bank has sold US$1.1 billion through its B-FXITT facility over 12 months ending April, compared to US$983 million in the similar period in 2024.
BOJ’s net purchases also approximated US$1.1 billion over 12 months ending April.
“Therefore, as at the 14th of May, Jamaica’s gross international reserves remain healthy, amounting to US$5.9 billion, or 135 per cent of the measure considered wto be adequate,” Byles said, adding that the BOJ is well positioned to support stability in the foreign exchange market should the effects of the policy changes abroad affect foreign exchange flows by more than currently anticipated.
While assessing that there has been a moderation in imported inflation, Byles warned that there is a risk of an increase in prices. The forecast for inflation is “skewed to the upside, which means that inflation could be higher than projected”, he warned.
“Higher inflation could stem from a sharper-than-anticipated increase in tariffs faced by trading partners of the US. In addition, domestic inflation could be higher than projected if there is a further escalation in geopolitical tensions, which could negatively impact international supply chains,” the BOJ governor added.
At the same time, he pointed to the possibility of lower inflation, in the scenario where international commodity prices turn out lower than projected and demand conditions weaken.
“The bank is prepared to adjust the stance of monetary policy if its outlook does not materialise and there is an upward deviation of inflation from the bank’s target range,” the BOJ governor said.
English (US) ·