Rate cut in sight
Byles bets on downward trend for final quarter
BANK of Jamaica (BOJ) Governor Richard Byles said he expects interest rates to begin falling again before the end of the year, projecting that economic conditions will allow for a cut to the central bank’s policy rate and, subsequently, commercial bank lending rates in the final quarter.
“Well we did see, over the last month or so, some dip in rates,” Byles told journalists at the central bank’s quarterly monetary policy press briefing on Thursday.
Byles was speaking a day after the BOJ announced its decision to maintain its key policy rate at 5.75 per cent until at least the end of September. This marks the second consecutive monetary policy committee (MPC) meeting that the central bank has held the rate steady, following a cycle of five cuts over the past 12 months that brought it down from 7 per cent.
The BOJ has historically used moral suasion to encourage banks to align their lending and deposit rates with its policy direction, but this approach has largely been unsuccessful, causing frustration and compelling the central bank to find new strategies to achieve its aim. However, Byles said he is now seeing some movements in interest rates among banks.
“When we look at rates in an aggregate way, we did see some dip…on the deposit side and on the lending side,” Byles continued. “So if that is the beginning of a gentle trend downwards, then we are very appreciative of that,” he added without quantifying the magnitude of the decline so far.
Still, he indicated that there could be more rate cuts before the end of the year from the central bank, which he expects to feed into lower rates for consumer loans.
“I’m saying that it is our hope that in the last quarter of this year we’ll have conditions that will allow interest rates to start to come down again, meaning the policy rate of BOJ and hopefully the commercial banks too.”
Byles’ hope for a downward shift in rates during the final quarter is tempered by significant external and internal headwinds. He specifically pointed to the interest rate environment in the United States, which creates a competitive challenge for emerging markets like Jamaica.
“The Fed rate in particular is not coming down,” Byles noted, explaining that attractive returns on US Treasury instruments draw investment away from domestic markets. This dynamic puts pressure on the Jamaican dollar and limits the BOJ’s flexibility as investors weigh the narrower interest rate differential against the higher inflation rate in Jamaica compared to the US.
The Federal Reserve – the US central bank – has held its policy rate at between 4.25 per cent and 4.50 per cent since December 2023. The US uses a range for its benchmark rate called the federal funds target range instead of a point range like Jamaica. US President Donald Trump has been at loggerheads with his Chairman Jerome Powell and his board of governors to cut interest rates but has not managed to bend them to his will so far.
On the domestic front, Governor Byles indicated that the commercial banks have cited internal “issues that they have to resolve” before significantly lowering their own lending rates. While urging them to address these constraints “as quickly and as strongly as you can”, he acknowledged the BOJ’s limited influence in a market economy, stating that, “The financial sector has to govern themselves.”
Put simply, the Governor conceded that the BOJ cannot force banks to cut rates, as they are independent entities that set their own prices. He argued that robust competition is the primary driver that would compel them to lower rates for customers. His statement suggests that the current level of competition is inadequate, causing a breakdown in the normal market dynamics that would otherwise benefit consumers.
“But that is one of the key issues that the monetary policy committee has said to us, we need to do all we can to fix, and hence our efforts in trying to create an e-KYC system to make it easier for customers of banks to move from one to the other if they feel they’re not getting the rates or the service that they deserve,” he reiterated.
The proposed electronic Know-Your-Customer (e-KYC) system will create a centralised database of customer information that can be accessed by all financial institutions. This is intended to eliminate the current frustration of gathering and submitting physical documents for each new application, a significant barrier that has historically discouraged consumers from switching banks for better rates or service.
Bank of Jamaica governor Richard Byles is projecting lower interest rates from the central bank and commercial banks in the last quarter of 2025.
