Borrow at cheaper rates now

 

Caribbean Money Daily --What does the lower central bank rate mean for you? The Bank of Jamaica (BOJ) reduced the policy rate by 25 basis points (bps) to 6.25 per cent per annum, effective Friday, 22 November 2024.

Similarly, in the United States, the Federal Reserve cut its influential federal fund rates by 50 bps in September, the first cut to the central bank's key interest rate since 2020.

In November, it further trimmed its benchmark rate by 0.25 percentage points amid cooling inflation. Relief is expected for borrowers s grappling with high costs.

The key rate now falls withing a range of 4.5% to 4.75% from its current 4.75% to 5% level.

In both jurisdictions, the US and Jamaica, with the rate cut, borrowing costs of loans should decrease. Also, lower rates should mean business loans are more affordable. However, savers will likely lose their high returns on some savings products.

The rate cut in Jamaica, the BOJ said was due to an improvement in the inflation outlook. Its press release indicates that following the temporary impact of Hurricane Beryl on prices, inflation is becoming more anchored in the Bank’s target range.

Annual headline inflation at October 2024, as reported by the Statistical Institute of Jamaica (STATIN), was 4.9 per cent, lower than the 5.7 per cent at September 2024. This outturn was also lower than the most recent forecast and was within the Bank’s target range of 4.0 to 6.0 per cent. Core inflation (which excludes the prices of agricultural food products and fuel from the CPI) was 4.5 per cent at October 2024, representing the sixteenth consecutive month that core inflation was below 6.0 per cent.

Inflation is projected to remain broadly within the Bank’s target range over the next two years. The key drivers of headline inflation, such as international grains prices and inflation in the economies of Jamaica’s main trading partners, continue to decline. In addition, the private sector’s expectations about the level of future inflation are gradually trending down. Despite an uptick in the exchange rate over recent months, the foreign exchange market remains relatively stable, supported by the Bank’s use of its buoyant foreign reserves to augment flows in the market.

However, uncertainty related to potential economic policy changes among Jamaica’s main trading partners could have adverse implications for investment and remittance inflows, as well as inflation expectations. Higher inflation could also result from further escalation in geopolitical tensions, which could negatively impact international supply chains. Worse-than-anticipated weather conditions in Jamaica could also put upward pressure on inflation. While anecdotal information suggests that private sector wage increases have stabilised at their pre-COVID rate, reports of labour market pressures in selected sectors have emerged. On the downside, lower inflation could result from weaker-than-projected demand.

Given the potential implications for the foreign exchange market of the uncertainty noted above, the MPC reaffirmed its commitment to ensuring continued stability in the market. It also noted that, based on available information, future interest rate adjustments will, of necessity, be gradual and will continue to depend on the incoming data.

A summary of the Monetary Policy Committee’s discussions, which influenced the monetary policy decision, has been published on the Bank’s website at https://boj.org.jm/core-functions/monetary-policy/policy-schedule/summary-of-decisions/. The date of the next policy decision announcement is 20 December 2024. Information Source: Bank of Jamaica



Caribbean Money Daily