BOJ wants banks to cut rates for customers

The Bank of Jamaica (BOJ) will lower its benchmark policy rate effective Monday, but it chided the banks for the slow pace of adjusting rates downward to customers.

The Monetary Policy Committee (MPC) of the BOJ noted that “interest rates on bank loans, along with other credit terms, remain high and restrictive”, indicating that banks may have “room to make downward adjustments in those rates”.

The BOJ will cut its wholesale benchmark rate to 6.0 per cent down 25 basis points effective December 23. Its the fourth rate cut since August and reduces the overall rate from its 7.0 per cent peak sparked by global inflation since the pandemic. With inflation down, the central bank said it can shift towards easing its monetary policy.

“The scope for further policy easing will depend on the trajectory of inflation relative to the lower bound of the inflation target range. However, the MPC noted that interest rates on bank loans, along with other credit terms, remain high and restrictive, indicating that banks may have room to make downward adjustments in those rates,” stated the BOJ in a release.

Annual inflation, reported by the Statistical Institute of Jamaica (STATIN), fell to 4.3 per cent in November 2024, down from 7.4 per cent in January. Turning to core inflation which excludes the impact of food and fuel, stood at 4.2 per cent, marking the seventeenth consecutive month below 6.0 per cent. Jamaica targets inflation between 4.0 and 6.0 per cent or slightly higher than its main trading partner the USA.

The decrease in inflation was largely driven by stable foreign exchange market conditions, moderate wage pressures, and the non-recurrence of certain administered price increases. Although recent adverse weather impacted agricultural supply and pushed food prices upward, the rise was less severe than expected. Looking ahead, inflation is projected to remain within the target range over the next eight quarters, though risks remain due to potential policy changes in Jamaica’s major trading partners.

In its meetings on December 18 and 19, the BOJ’s MPC decided to reduce the policy rate by 25 basis points to 6.0 per cent per annum, effective December 23, 2024. This represents the fourth consecutive rate cut in 2024. The MPC also narrowed the interest rate corridor to 200 basis points from 300, lowering the rate on the Bank’s Standing Liquidity Facility (SLF) to 8.0 per cent.

In the US, inflation remains above the Federal Reserve’s 2.0 per cent target, though it showed slight signs of moderation in late 2024.

Despite mixed international price movements, such as a decline in oil prices and increases in grain and LNG prices, the domestic banking system remains stable. While Jamaica’s inflation remains high by historical standards, the BOJ is committed to ensuring inflation remains low, stable, and predictable in the long term. The MPC will continue to monitor inflationary trends to guide future policy adjustments.

business@gleanerjm.com