2 months ago
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Borrowers should expect interest rates to stay elevated for now, based on signals from lenders, even as the central bank moves in the opposite direction.
The Bank of Jamaica’s newly released Credit Conditions Survey report indicated that lending institutions planned to increase interest rates on new local currency loans by 15 basis points in the March quarter and, further, by 70 basis points in the June 2025 quarter.
The collective 85 basis point expected rise from December would result in an average lending rate of 16.74 per cent interest by June 2025, according to the report, which polls various lenders, inclusive of commercial banks, building societies, merchant banks, credit unions and development banks.
“The planned increase in local currency rates for the March 2025 and June 2025 quarters reflects lenders’ risk appetite and reversion to normal rates at the end of their loan promotional activities,” the report noted.
Over the March quarter, one of the biggest categories of lenders, commercial banks, followed through with higher lending rates across the board, according to the most recent interest rate data published on the central bank’s website. Over the three months, commercial credit climbed by 10 basis points to 11.41 per cent on average, consumer credit or personal loans increased by 23 basis points to 23.36 per cent, while the overall average rate was up by six basis points to 12.18 per cent.
“For the March 2025 and June 2025 quarters, credit conditions are expected to tighten for secured loans, while conditions for unsecured loans are expected to remain unchanged. The tightening reflects plans by some institutions to increase fees,” BOJ noted in its credit conditions report.
The survey conducted in January and February interviewed 22 institutions. It is designed to elicit qualitative information on changes in the demand and supply of credit to various types of businesses as well as individuals.
“The planned increase in local currency rates for the March 2025 and June 2025 quarters reflects lenders’ risk appetite and reversion to normal rates at the end of their loan promotional activities,” the report stated.
The planned increases buck the signal coming from the central bank, which has cut rates five times in increments of 25 basis points since the summer of 2024, bringing the policy interest rate down from 7.0 per cent to 5.75 per cent.
The policy rate was at 6.0 per cent when the current survey was conducted. Two weeks ago, when the central bank executed its fifth rate cut, to 5.75 per cent, BOJ Governor Richard Byles appealed to lenders to give their clients a break by adjusting the terms on fixed loans issued when interest rates were elevated.
The credit conditions report projects new local currency loan rates will increase, on average, by 85 basis points over two quarters to 16.74 per cent across financial institutions. Among the loan categories, personal credit is expected to rise 68 basis points from 17.36 per cent to 18.04 per cent, and business loans by 90 basis points from 15.52 per cent to 16.42 per cent.
The survey also creates an index of overall credit conditions.
The overall Credit Demand Index, or CDI, rose to 102.3 points from 96.1 points, reflecting an increase in demand. The CDI for microbusinesses was 114.0 points and small businesses 105.8 points, showing particularly sharp increases. Large businesses were more cautious at 98.3 CDI, reflecting a reduction in loan demand.
“For the June 2025 quarter, lenders expect demand for credit by large-sized businesses to decline. The anticipated reduction is reflected in the demand for local currency loans, while the demand for foreign currency loans is expected to remain unchanged,” the BOJ noted.
The decline in large business loan demand was reflected in the industries of agriculture and fishing; mining and quarrying; tourism and professional and other services; electricity, gas and water; and entertainment. The decline in demand for foreign currency loans was reflected in all industries except for manufacturing, which was unchanged, the report stated.
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