BOJ Gov not satisfied with banks pace in reducing interest rates

Bank of Jamaica (BoJ) Governor, Brian Wynter, says there is a need for discussions between the Bank and financial institutions, to determine the timeframe within which they could reduce interest rates, reflecting consistency with BoJ policy.
Speaking at the BoJ’s quarterly briefing at the institution’s downtown Kingston auditorium on Wednesday (November 10), Mr. Wynter noted that while the central bank’s policy is aimed at reducing interest rates, commercial banks loan rates do not appear to be reducing commensurately.
He pointed out that this development has taken longer than anticipated to fully materialize, arguing that interest rates could be reduced much faster.
“To the extent of that the reduction is not as great, the policy is not flowing through as we would wish,” Mr. Wynter observed. However, he said that the BoJ recognised that there are constraints to making the adjustments it would wish to see, which means there has to be a transitional period.
“How long should that period be? That we should discuss. Has it been too long? I think perhaps, yes,” the Governor stated.
Mr. Wynter said, ideally, the BoJ would be “happy” to see the banks reduce their interest rates much faster, provided it is done in a manner that preserves their financial integrity and does not jeopardize any of the ratios they are required to meet, with respect to strong capital.
“They must earn sufficient returns to make sure that they are not going to become a risk to the system, (for) which we then have to expend tremendous national resources, that can then set back the growth prospects, even further. So, provided that they can make those adjustments in that context, we need to see those adjustments made,” he said.
Noting that the banks are “strong”, the Governor posited that they are in a position where they can make the necessary decisions, going forward.
Stressing that the BoJ is expected to continue easing the stipulations of its monetary policy, Mr. Wynter assured that the “positive effects” should be maintained. He added that, while bankers have to continue to reflect the impact of these changes on their balance sheets and income statements, they should go ahead and make the necessary changes.
“I have no doubt that bankers who are in the business of making loans, are anxious to get as many loans out the door that are going to pay them back. So, I think we have to work together on this one. I think it’s a central issue, as we go forward in this period, and it’s going to make a difference as to how we grow,” he said.