16.8 % Increase In Credit Extended to Private Businesses

The Bank of Jamaica (BOJ) is reporting a 16.8 per cent increase in credit extended by deposit-taking institutions (DTIs) to private-sector businesses and households over the 12-month period to June 2019.

Newly appointed Governor, Richard Byles, says this out-turn exceeded the 12.3 per cent recorded at the end of June 2018.

He was speaking at the Central Bank’s quarterly briefing on Thursday (August 29), at the BOJ in downtown Kingston.

Mr. Byles, who was speaking at his first briefing since he assumed office on August 19, noted that the acceleration in private-sector credit expansion in recent months, is consistent with previous BOJ accommodative policy actions.

These actions, he pointed out, have seen a reduction, by 300 basis points, on Central Bank overnight policy rates for deposit-taking institutions between June 2017 and June 2019.

The latest was a 25-point reduction to 0.50 per cent, effective Wednesday (August 28).

Mr. Byles said the financial system’s response to these policy signals has been “significant”, noting that “we have seen reductions in commercial banks’ local currency lending rates”.

Simultaneously, he said there has been a marked uptick in the growth in financing provided by DTIs, including commercial and merchant banks and building societies, to the private sector.

This, the Governor pointed out, demonstrates that the transmission of policy rates to market rates “has been working, albeit not as efficiently as we would have liked”.

“While the faster pace of private-sector credit growth is a positive signal, we are of the view that this expansion in credit is still not enough, particularly in the context where domestic activity remains below the economy’s potential or capacity,” he argued.

Mr. Byles said this suggests that an even faster pace of credit growth is possible without causing inflation to rise above the target of four to six per cent.

“The Bank of Jamaica’s decision to lower the policy rate is, therefore, solely intended to stimulate a faster pace of expansion in private-sector credit, which will fuel increased economic activity on the part of businesses and households,” he said.

Mr. Byles added that this increased economic activity will be accompanied by price pressures and, in that way, the rate cut will support inflation, which stood at 4.3 per cent in July, “returning to the centre of the target more quickly”.