AFTER years of being squeezed by rising loan payments, Kamesha, a corporate executive and mother of three, is now waiting with cautious optimism for her bank to lower the rates she pays on her mortgage and car loan.

It’s been five months since the Bank of Jamaica (BOJ) reduced its policy rate, signalling that it wants to see loan rates in Jamaica falling for both businesses and consumers. But while Kamesha received quick notices from her bank when rates were going up, she hasn’t heard anything about a reduction since rates started coming down.

“I have not gotten any communication from any of them about reducing the rates,” she said, laughing to mask her frustration.”While some banks are offering lower rates for new loans, existing borrowers like me — who endured years of rate hikes — haven’t seen any reductions yet, despite the BOJ’s policy rate cuts.”

The numbers tell the brutal truth: Her mortgage and car payments have ballooned by $40,000 monthly since 2022—nearly half a million dollars extra per year—eviscerating her ability to save or invest.

Kamesha’s struggle exposes Jamaica’s broken monetary transmission mechanism — where BOJ rate cuts rarely translate to lower consumer loan rates. While central bank policy should directly affect borrowing costs, systemic delays mean relief takes months or years to materialise. The BOJ admits its wielding “blunt tools” to fix the problem, leaving borrowers paying the price for this disconnect as fixes remain slow-moving and it costs you money.

“The biggest issue is that lending rates don’t respond as quickly or as strongly as we’d like,” says Wayne Robinson, BOJ’s senior deputy governor, in an interview on the matter with the Jamaica Observer. He points to two key roadblocks: fixed-rate loans, which he said make up a “notable portion” of bank loans that are immune to immediate policy changes, and low competition in the banking sector.

Wayne Robinson, senior deputy governor, Bank of Jamaica.

But the roots of the problem run deeper. The BOJ’s internal analysis reveals that Jamaica’s banking sector, though home to 11 institutions, is dominated by a few large players holding most deposits and liquidity. This concentration reduces their incentive to compete on rates, even when the central bank signals a change.

If banks won’t compete, customers could—but here lies another hurdle: inertia. Switching banks to secure better rates is often discouraged by cumbersome Know Your Customer (KYC) paperwork. The BOJ hopes its upcoming e-KYC digital platform — a shared database for customer info — will ease this friction, but full implementation is years away.

For ordinary Jamaicans, this means mortgage and business loan rates stay stubbornly high for longer than the BOJ would like as it tries to stimulate the economy.

“It makes our job harder…and means that we have to be a little bit more aggressive than we otherwise would need to be,” Robinson noted.

This lag isn’t unique to Jamaica, but its scale shocks economists. An IMF study shows that when the BOJ cuts its rate by 1 per cent, banks barely reduce the rates they charge customers — reducung them by just 0.15 per cent after three months. That’s much weaker than elsewhere. In rich countries, a 1 per cent rate cut leads to a 0.43 per cent drop in lending rates. In developing economies it’s nearly double that at 0.90 per cent.

The BOJ is trying to fix this but for now, rate cuts don’t give the economy the boost they should. That is behind why the BOJ started hiking its policy rate earlier and quicker than other central banks from September 2021 to November 2022, when its policy rate rose from 0.5 per cent to 7 per cent — an 11-year high.

“All this could mean that in a tightening cycle, the costs to the economy as a whole could be larger than what would otherwise obtain with a more efficient system,” Robinson pointed out to Sunday Finance.

Facing these structural hurdles, the BOJ is bringing in reinforcements. An international consultant has been tapped

“We have started conversations with deposit-taking institutions (DTIs), and an international consultant has had engagements at the technical level with the DTIs as well on our behalf. We have also had discussions with securities dealers, given the role that that sector also plays in financial intermediation, particularly in the bond market,” Robinson said.

He pointed out that there are various initiatives from the consultant that are currently being assessed by the team.

“There are some that can be effected in the short term. So, for example, one initiative we have already implemented at our last monetary policy decision was to reduce the spread between our policy rate and our interest rate on overnight loans to banks so as to help to steer short-term market rates closer to our policy rate,” Robinson added.

Altogther, the BOJ said the roll-out of the tools to fix the issue “will be a multi-year programme”.

While these domestic reforms unfold, international partners like the IMF recommend complementary measures –including greater exchange rate flexibility– to strengthen policy transmission. But these technical solutions remain years from easing today’s pain.

For borrowers like Kamesha, this means maintaining constant vigilance in a system that demands extraordinary effort from ordinary people. “You have to be very assertive and determined to push for that rate cut on your loans. That little half per cent per month in interest rate cuts could mean paying millions of dollars less over many years, especially for a mortgage,” she says, before acknowledging the bitter reality: even this activist approach falls victim to Jamaica’s other epidemic– the scarcity of time.

Her unfinished mortgage rate battle ultimately reflects the BOJ’s broader challenge: building a financial system that responds as quickly to relief as it does to crisis, and that works for busy mothers as well as it does for bankers.