Governor of the Bank of Jamaica (BOJ), Richard Byles has called an urgent meeting with the island’s Deposit Taking Institutions (DTIs) to discuss the pace of passing on reductions in the bank’s policy rates to borrowers.

DTIs are commercial banks, merchant banks and building societies. The move to call in the DTIs for such a meeting comes as the Central Bank yesterday again lowered its policy interest rate by 25 basis points to half-of-a-per cent. The policy interest rate represents the interest rate offered by the BOJ on overnight placements.

In his first public speech as Central Bank Governor, Byles acknowledged that interest rates at DTI’s have been coming down in tandem with the bank’s reductions in the policy rate but not fast enough. Speaking at the BOJ’s Quarterly Monetary Policy Report yesterday, Byles opened the door for DTIs to meet with him, explaining “whatever blockage is in the system that is causing the rates to not go down as fast. I want them to talk why we are not seeing a better transmission of the policy rate reductions to borrowers,” he declared.

Byles said he is approaching the meeting with an open mind.

He told the press conference that the Central Bank has reduced its policy rates several times over the one-year period June 2017 and June 2019. “Cumulatively, the bank over this period has reduced the policy rate by 300 basis points,” Byles explained.

The Central Governor observed that “the response of the system to its policy signals have been significant as we have seen reductions in lending rates. At the same time, we have observed a marked uptick in the growth in financing provided by DTIs to the private sector.”

This, he said demonstrates that the transmission of policy rates to market rates has been working, albeit, not as efficiently as we would have liked. Governor Byles added that “the bank continues to observe that private sector credit expansion has accelerated in recent months, consistent with our previous accommodative policy actions.”

LOANS TO BUSINESS AND HOUSEHOLDS GROWING

He disclosed that credit extended by DTIs to private sector businesses and households grew by 16% over the 12-month to June 2019, which was above the 12.3% growth experienced a year earlier in June 2018.

According to Governor Byles, “while this faster growth of private sector credit is a positive signal, we are of the view that this expansion in credit is still not fast enough, particularly in the context of where domestic activity remains below the economy’s potential or capacity. This suggests that an even faster pace of credit growth is possible without causing inflation to rise above the inflation target.”

He reiterated that the bank’s decision to lower the policy rate is solely intended, as usual, to stimulate a faster pace of expansion in private credit, which will fuel increased economic activity on the part of businesses and households.

Governor Byles said this increased economic activity by businesses and households will be accompanied by price pressures and in that way, the rate cut will support inflation returning to the centre of the target more quickly.