Wynter wants banks to cut rates faster

The Bank of Jamaica has cut interest rates again, this time by 50 basis point to 7.5 per cent.

The change took effect Monday, November 15, days after Bank of Jamaica (BOJ) Governor Brian Wynter suggested a shift in his position on the pace at which the banks have chosen to cut their lending rates.

Wynter had previously cautioned that the banks should not move too fast to bring down their rates, if stability was to be maintained in the banking system. But last Wednesday, and again yesterday, the central bank chief suggested the bankers were being too cautious, and that their pace could well conflict with monetary policy goals.

Wynter said last Wednesday that there is a need for discussions between the central bank and financial institutions, to determine the time frame within which they could reduce interest rates, reflecting consistency with BOJ policy.

The central bank has consistently reduced policy rates from double digits in July 2009 to the current 7.5 per cent on the 30-day instrument, cutting three points in this calendar year alone.

The banks, however, are still quoting base rates of up to 20 per cent.

Scotiabank Jamaica has the lowest, 16.75 per cent, which takes effect December 1.

"To the extent of that the reduction is not as great, the policy is not flowing through as we would wish," said Wynter observed.

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.

But: "How long should that period be? That we should discuss. Has it been too long? I think perhaps, yes," the Governor said.

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 jeopardise 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.

"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.

- Gleaner and JIS reports