New loans to the private sector continue to grow in spite of the uptick in interest rate in the market.

The Bank of Jamaica (BOJ) is reporting that the flow of new loans to the private sector increased in real terms by 12.6 per cent up to October 2023, notwithstanding a tightening in credit terms, as indicated by deposit taking institutions (DTIs).

In its latest Quarterly Credit Conditions Survey, the BOJ reports that local currency deposits grew by 15.4 per cent at October 2023, an acceleration relative to 13.2 per cent in April 2023 at the start of the fiscal year.

This was above the estimated growth in nominal Gross Domestic Product (GDP) for the December 2023 quarter. Some of this growth, according to the BOJ in its Monetary Policy Committee (MPC) Policy Rate Statement yesterday, “is consistent with a fall in foreign currency deposits, given the stability in the exchange rate associated with the recent current account surplus of the balance of payments and the bank’s policy actions.”

Consequently, deposit dollarisation continued to trend downward, showing an increasing preference to hold Jamaican dollars.

Lagged pass-through of its policy rate

The MPC says it continues to see a relatively strong, lagged pass-through of its policy rate to interest rates in the domestic money and capital markets and the term rates offered on deposits by DTIs. The upward adjustment in market rates and time deposits has slowed, consistent with the MPC’s pause in interest rate increases.

The DTIs, the MPC says, also continue to make small changes to rates on saving deposits and new mortgage loans. However, the weighted average loan rate declined marginally in October 2023.

In its assessment of the banking sector, the MPC has declared that “the domestic banking system remains sound, with adequate capital and liquidity. The domestic fiscal policy stance continues to pose no risk to inflation over the near term”.

The MPC decided to maintain heightened surveillance of these risks and core inflation, noting that it is prepared to take the necessary actions, including further tightening of monetary policy, if the emerging upside risks to inflation materialise.