Rate cuts by the Bank of Jamaica (BOJ) are failing to lower borrowing costs, with lending rates holding firm even as deposit rates fall — exposing a persistent disconnect in how monetary policy reaches households and businesses.

The central bank reduced its policy rate to 5.75 per cent from 6 per cent in May 2025 as inflation eased, and cut it again to 5.5 per cent in February 2026 before holding steady in March amid heightened uncertainty linked to rising global commodity prices and geopolitical tensions.

Commercial bank deposit rates responded, declining to 2.1 per cent from 2.7 per cent. Lending rates, however, remained largely unchanged, edging up to 11.9 per cent from 11.8 per cent.

The result is a widening gap in transmission, with lower funding costs not being passed through to households and businesses. Instead, monetary easing is being absorbed within the financial system rather than reaching the real economy.

The BOJ has repeatedly flagged this, noting that the limited pass-through reflects “structural rigidities in domestic credit pricing, including the high share of fixed-rate loans and the slow repricing of existing credit”.

Those rigidities are now feeding through to credit behaviour. The central bank’s 2025 Financial Stability Report shows the credit-to-GDP gap remained negative, indicating lending continues to run below its long-term trend despite easing monetary conditions.

Loan growth remained positive but the bank described “muted financial cycle pressures”, suggesting lower policy rates have not translated into a broad-based expansion in credit across the economy.

More recent data indicate that pattern is persisting. Private sector credit growth slowed to 6.9 per cent in January 2026 from 8.0 per cent in December 2025, reflecting a moderation in lending to both households and businesses.

At the same time, banks are operating from a position of strength. Deposit-taking institutions expanded total assets by 9.1 per cent to $3.06 trillion in 2025, supported by a 12.7 per cent increase in deposits. Liquidity remained elevated with the liquidity coverage ratio at 194.1 per cent — nearly double the regulatory minimum — while the sector’s capital adequacy ratio rose to 14.8 per cent.

Despite strong balance sheets, lending behaviour has remained cautious, with institutions allocating more resources to liquid assets and investments rather than expanding credit.

At the same time, early signs of strain are emerging in parts of the loan portfolio. Consumer non-performing loan ratios increased during the year, even as mortgage-related delinquencies declined, pointing to uneven pressure across household segments.

Corporate lending trends were similarly mixed, with credit growth varying across sectors and no clear indication of a broad-based pick-up in investment activity.

Even as these trends play out, the central bank flagged emerging asset price pressures, noting that residential real estate prices continued to outpace rental growth, raising concerns about potential overvaluation and the risk of a correction that could feed back into the financial system through credit and collateral channels.

More broadly, vulnerabilities in the banking system were assessed as moderate, driven mainly by exposure to credit and interest rate risks, even as overall financial stability indicators pointed to a resilient system.

The combination of strong bank balance sheets, elevated liquidity, and limited movement in lending rates suggests that monetary easing is being absorbed within the financial system rather than transmitted to the real economy.

That dynamic risks weakening the effectiveness of monetary policy, particularly as the BOJ balances inflation risks against moderating domestic growth and rising external uncertainty.

The central bank has moved to address these constraints through structural reforms including the roll-out of an electronic know-your-customer framework, plans for account portability, and measures aimed at increasing competition in financial services — initiatives designed to reduce frictions and improve how quickly policy changes are reflected in lending and deposit behaviour.

While the financial system remains resilient, the persistence of transmission gaps — alongside slowing credit growth and pockets of emerging stress — suggests that rate adjustments alone may not be sufficient to stimulate borrowing without deeper changes in how credit is priced and allocated.

For now, the disconnect remains. Money is cheaper. Access to it is not.