BORROWERS are beginning to benefit from lower interest rates on new loans as commercial banks and other financial institutions respond to recent policy rate cuts, but depositors are facing reduced returns on their savings and investment products, according to the Bank of Jamaica’s monetary policy committee (MPC) and the March 2025 Quarterly Credit Conditions Survey.

Borrowers came under tremendous pressure over the last four years as deposit-taking institutions (DTIs) and other lending players hiked the cost of borrowing across the board for new loans and on some existing customers. This move by lenders meant that the cost to finance a new car, home or access credit got a whole lot more expensive while existing borrowers were forced to dig deeper into their pockets to meet a rise in their existing loan costs.

That response came at a time when the Bank of Jamaica (BOJ) hiked its policy rate from 0.50 per cent in September 2021 to 7 per cent in November 2022. Point-to-point inflation also trended to a peak of 11.3 per cent in March 2022, well outside of the BOJ’s targeted band of 4-6 per cent.

The BOJ has since cut its policy rate from 7 per cent in August 2024 to 5.75 per cent in May 2025. The country’s point-to-point inflation for June 2025 was 3.8 per cent.

“Following the reduction in the policy rate in August 2024, lenders reported a decline in interest rates, which began in the December 2024 quarter, while fees remained generally unchanged until March 2025. For the March 2025 quarter, respondents reported reductions in both interest rates and fees, with plans for further price reductions over the next two quarters,” stated the BOJ’s monetary policy committee (MPC) on the March 2025 Quarterly Credit Conditions Survey. This information was obtained from the minutes of the MPC’s June 25-26 meeting.

The quarterly credit conditions survey is a tool used by the BOJ to gauge the temperature of credit in the economy. The March 2025 survey was administered to all DTIs including commercial banks, building societies and a merchant bank, eight credit unions and two public entities.

The survey revealed that credit conditions eased in the December 2024 quarter after 11 quarters or 33 months of tightening credit conditions. That ease in credit conditions was more substantial in the March 2025 quarter with continued easing in the June and September 2025 quarters on both price and non-price terms.

According to the BOJ’s data on domestic currency (Jamaican dollar) loan rates by commercial banks, the overall weighted average interest rate moved from 12.15 per cent in March 2024 to 12.11 per cent in May 2025. However, instalment credit, mortgage credit and personal credit are higher over that same time period while commercial credit or loans to businesses has declined from 11.60 per cent to 11.39 per cent over the same time frame. Local government and other public entities average rates remained relatively unchanged while central government saw a cut in rates from the peak of 19.64 per cent in January 2024 to 13.08 per cent in May 2025.

A glance at foreign currency loan rates by commercial banks revealed that the overall weighted average interest rate moved from 8.26 per cent in March 2024 to 7.76 per cent in March 2025. The weighted loan rates across all categories except mortgage credit was down over the same time frame. Commercial banks held $1.41 trillion in loans as of May 2025.

“Average interest rates on local currency loans decreased for large and micro businesses in the March 2025 quarter, with increases planned for the June 2025 quarter. Commercial banks reported reduced lending rates for Micro and Large businesses, while lending rates for small and medium businesses increased,” the BOJ minutes added.

Although the BOJ has increased and decreased its policy rate, the pace of those cuts throughout the financial system doesn’t happen in a one-to-one relationship with respect to lending rates. That’s influenced by a myriad of factors such as the lender’s previously agreed contracts where it agreed to pay investors or borrowers at a defined rate for a set period. Also, changes to regulations such as the introduction of Basel III or the cash reserve ratio can further impact how banks translate their rate cuts to the public.

As a result, some lenders will be quicker to adjust their lending rates for new loans compared to other market players. However, each borrower can seek to renegotiate with their lender for a lower interest rate based on the reduction in rates at different DTIs.

The BOJ’s data for domestic currency deposit rates revealed that the weighted average overall time deposits rates moved from 6.33 per cent in May 2024 to 5.34 per cent in May 2025. The overall weighted average deposit rate also dropped from 2.49 per cent to 2.35 per cent over the same time period which means depositors are earning less on their deposits.

“Both the weighted average and time deposit rates marginally declined in April 2025. Following the Bank’s 25 basis points (bps) cut in the policy rate to 5.75 per cent in May 2025, further reductions in deposit rates are anticipated for the June 2025 quarter. Overall lending rates in April 2025 were less responsive,” the MPC stated on the monetary policy effectiveness.

JMMB Bank (Jamaica) Limited, the commercial bank which the BOJ revealed to offer the highest weighted average domestic currency deposit rates in January 2023, has adjusted its deposit rates as of June 1, the first change in more than two years. While its JMD and USD certificate of deposit (CD) rates along with its EZ access rates were left unchanged, the bonus saver interest rates have been adjusted. The $1,000-$19,999 band has moved from 1.00 per cent to 0.75 per cent while the $5 million and over band has moved from 5.00 per cent to 4.00 per cent.

Even Barita Investments Limited, a securities dealer, has adjusted its repurchase agreement rates with the over $100 million band for 365 days moving from 8.75 per cent to 5.10 per cent. The lowest band for 365 days has also seen an adjustment from 7.50 per cent to 4.35 per cent.

These changes are a positive for banks and dealers as it reduces the interest expense cost on their income statement, leaving space for more cash to flow to the bottom line or net profit. The adjustments in interest rates by different market players also translates to lower rates for different companies seeking to refinance their debt.

The Government of Jamaica’s (GOJ) treasury bill yield for 180 days has also moved down from 8.43 per cent in June 2024 to 5.38 per cent in June 2025. Even the BOJ’s average CD yields have decreased over the same time period from 9.88 per cent (7.50 per cent fixed rate) to 5.87 per cent (6.00 per cent fixed rate). However, the BOJ’s CD auction on July 23 was undersubscribed as it received $42.18 billion in bids versus the $54 billion auction size. As a result, the average yield was 6.11 per cent.

The BOJ’s MPC will announce their next policy rate decision on August 20. That’s nearly three weeks after the Federal Open Market Committee (FOMC) announces it decision on July 30. The FOMC falls under the United States Federal Reserve, the country’s main central bank.

“The committee noted ongoing initiatives to improve the transmission mechanism and highlighted that addressing structural factors, combined with a deeper and more robust domestic capital market to compete with the credit market, could enhance the effectiveness of monetary policy transmission,” the MPC closed.