BANK OF JAMAICA (BOJ) Governor Richard Byles has sent the clearest signal yet that the central bank is just at the start of its rate-cutting cycle and is already warning banks that it won’t be sitting back and tolerating their efforts to frustrate its mandate of keeping inflation in check.

Byles made the disclosure at the central bank’s monetary policy press briefing on Monday.

“Generally speaking, I think that things have trended in a direction that is positive for the country and our objective of keeping inflation in a four to six corridor,” Byles told journalists at the bank’s Nethersole Place headquarters.

For October, that inflation was 4.9 per cent, the lowest it has been since June 2021, allowing the central bank to shave a quarter percentage point from its key policy rate bringing the rate to 6.25 per cent. And while Byles admits that it “may not be significant enough to start the ball rolling for some of the commercial banks”, in terms of cutting interest rates at this time, he said the central bank is watching in keen anticipation that they will start to cut interest rates to their customers shortly.

“To the extent that the data that come in supports us lowering rates further, we will, and to the extent that there are no significant risks that we consider particularly dangerous to inflation, we will continue to reduce, so all of Jamaica can take that as signal from the Bank of Jamaica. How far we go depends upon that incoming data and those circumstances that surround in the global economy, but also the Jamaican economy,” he added.

But commercial banks which have frustrated the central bank’s efforts when it was raising rates, are back in the spotlight for rate reductions as it is implemented at the BOJ level.

“We are absolutely determined that we have to have a much more efficient transmission system,” Byles said. The transmission system is the method through which central banks influence demand in the economy through monetary policy.

Typically, a central bank fighting inflation will hike interest rates with the hope that commercial banks borrowing from it at higher rates will, when they add their own margins, create a disincentive for consumers and businesses to borrow. But throughout its rate hiking cycle, banks largely ignored the central bank’s signal rates which impeded its efforts to reduce inflation quickly, and the BOJ does not want that to happen again as it reduces rates now, and even said it is considering several measures to prod them into responding how they want them to respond to movements in the policy rate.

“We are not just watching them but also we are working on methods to improve that system, for sure,” Byles said of the transmission system.

“We take this matter very seriously because at the centre of BOJ’s objectives, in fact, its reason to exist as an inflation targeting central bank, is the efficacy of the monetary transmission system, and if that is inefficient, then we have a real problem; we have a problem that is front and centre in the economy. So we have begun work on a central e-KYC data bank. That is going to take us a little while… That’s going to take us a couple years to get done. But what that will ultimately do is to give consumers easier ways of porting their business around, whether you are a depositor or you are a borrower, you can move more freely and easily amongst the banks,” Byles noted.

e-KYC refers to electronic know your customer requirements. The central bank said the data bank for e-KYC will hold all the information consumers use to open bank accounts such as ID, TRN, addresses, utility bills, and so on, in a central digital location for sharing amongst financial institutions so that consumers would be spared having to find them each time they open an account with a bank.

“So while that is coming along, that is good for a number of reasons… in creating more competition; there are a number of benefits from it. But in the meantime, there are other measures that we are looking at, which we can’t discuss at this point, but I can assure you, we take that bit of inefficiency very seriously, and it has to be remedied.”

He also defended the timing of its interest rate cuts, insisting that the central bank did not wait too long to start cutting, adding that the slump the economy is now experiencing has nothing to do with interest rates and more to do with the impact Hurricane Beryl has been having on the island.

“The PIOJ (Planning Institute of Jamaica) estimates a 2.8 per cent contraction in September quarter and we do expect a small contraction in the December quarter, but bear in mind that that contraction is really due to the impact of Beryl, so that’s just a short-term shock and the economy will recover,” Wayne Robinson, senior deputy governor at the central bank, noted.

He reminded that the country was coming off a strong recovery following the pandemic and pointed out that what is being seen is “really a normalisation of growth rate” with expectations that economic growth will return to the 1 per cent to 2 per cent long-term trend.

He highlighted the decline in the construction sector and slowing down in the tourism sector which was impacted by a travel advisory and the short-term impact of Beryl.

“We must also again bear in mind that, for tourism, last year was a very strong year for tourism, and so one would expect some normalisation. Of course, what we see happening now in the global tourism market is a recovery in the demand for long-haul tourism, so that is also affecting our tourism demand,” Robinson said.

“We are also looking carefully at what’s happening in the retail sector, the distribution sector, because one thing that is also reflecting the impact is one, the high prices on people’s real disposable income as well as the impact of our monetary policy. So in short, if we just abstract from the Beryl impact, what we see is really a normalisation of the growth pattern of the country.”