Following another reduction in its policy rate, the Bank of Jamaica (BOJ) is urging commercial banks to pass on the benefits to their customers by lowering lending rates.
Effective Wednesday, the BOJ cut the cost of short-term borrowing for commercial banks by 25 basis points, from 6.0 percent to 5.75 percent. This policy rate—the interest rate on overnight placements by deposit-taking institutions at the central bank—serves as a key benchmark influencing borrowing costs across the economy.
BOJ Governor Richard Byles highlighted that the decision was made “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.”
Since last year, the central bank has cumulatively reduced its policy rate by 125 basis points, down from seven percent.
At his quarterly monetary policy briefing on Wednesday, Byles expressed concern that commercial banks have been slow to adjust lending rates in line with the BOJ cuts. He plans to meet with banks to better understand the reasons behind this delay.
“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,” Byles said.
He added, “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.” (The Fed referenced here is the U.S. Federal Reserve.)
Acknowledging that many loans were issued at fixed rates during the period of higher policy rates, Byles said borrowers locked into those rates deserve relief now.
“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.
On the economic outlook, the BOJ governor noted that despite global uncertainties, Jamaica’s incoming data continues to reflect a stable domestic economy with inflation remaining within the BOJ’s target range of four to six percent.
The latest inflation report from the Statistical Institute of Jamaica (Statin) estimated annual inflation at 5.3 percent in April, comfortably within the central bank’s target band.
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