Publication date: 5 April 2016 | Covering: March 2016
Monthly Briefing
- FRESH: Fed March 15–16 holds 0.25–0.50% (21 days ago); reduces 2016 median rate projections from 4 to 2; dollar falls
- ECB major stimulus package March 10: rate cut to -0.40%; QE expanded to €80bn/month; corporate bonds added
- Brussels terrorist attacks March 22: 32 dead at airport and metro; Paris-level security emergency
- Global markets recovering from January–February turmoil; oil recovering; China PMI stabilising
- US February payrolls 242,000; labour market solid; wage growth modest
- BOJ easing; Jamaica IMF EFF; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Fed Cuts Its Rate Projections: A Dovish Pivot
The Federal Open Market Committee held the federal funds rate at 0.25 to 0.50 per cent at its March 15 to 16 meeting, as markets had expected following the turbulent start to the year. The more significant development was the accompanying update to the Summary of Economic Projections, where the median FOMC participant now projected only two rate increases in 2016, down from four at the December 2015 meeting. The reduction in the projected rate path reflected the Committee’s assessment that global economic and financial conditions had tightened since December, warranting a more gradual pace of normalisation. Chair Yellen, at the post-meeting press conference, characterised global developments as a source of “considerable uncertainty” and noted that the Committee was “monitoring developments abroad” closely. The dovish pivot had an immediate and significant market impact: the dollar fell sharply, emerging market currencies and bonds rallied, and global equity markets extended their recovery from the January–February lows. For Jamaica and other emerging market economies, the Fed’s signal of a slower tightening pace was a welcome relief from the external financing pressure that had built through the first two months of the year.
ECB Goes Big: Negative Rates Deeper, QE Expanded
The European Central Bank delivered a landmark stimulus package at its March 10 meeting, going significantly further than markets had anticipated. The deposit rate was cut by 10 basis points to minus 0.40 per cent. The monthly pace of quantitative easing was expanded from €60 billion to €80 billion. The QE programme was extended to include corporate bonds — a new category of eligible assets — alongside government bonds and agency securities. Four new long-term refinancing operations were announced at rates as low as minus 0.40 per cent, in effect offering banks a subsidy for lending. ECB President Mario Draghi declared that the ECB had “no limits” in its determination to achieve its inflation mandate. The scale of the package was larger than markets had priced in, and European equities and bonds initially rallied strongly. However, Draghi’s remark that the ECB did not anticipate further rate cuts confused some observers and led to a partial reversal. The ECB’s aggressive easing contributed to the dollar’s weakness after the Fed’s dovish March meeting, as the divergence in US and European monetary policy narrowed.
Brussels Attacks: Terror Returns to Europe
Coordinated terrorist attacks struck Brussels on 22 March, with suicide bombers targeting the departure hall of Zaventem international airport and a metro station at Maalbeek near the EU institutions, killing 32 people and injuring more than 300. Belgian security services declared a state of emergency, and the attacks — claimed by the Islamic State — were linked to the same network responsible for the November 2015 Paris attacks. The Brussels attacks reinforced the security concerns that had been elevated across Europe since Paris and raised new questions about Belgium’s intelligence and security apparatus. For financial markets, the impact was limited: a modest risk-off reaction that partially reversed within days, consistent with the market response to recent prior attacks. For the tourism sector — including Jamaica’s, which depends significantly on European visitor arrivals — each major European terrorism event created a degree of demand uncertainty that required monitoring.
Jamaica Mortgage Market in March
Jamaica’s mortgage market closed the first quarter of 2016 in modestly improved shape compared to year-end 2015. The global market recovery from the January–February turmoil, combined with the Fed’s dovish March pivot, reduced external financing pressures on the Jamaican economy. The Bank of Jamaica’s monetary easing cycle continued to provide a supportive domestic lending environment. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent anchored the affordable housing finance segment. The approach of the new 2016/17 fiscal year in April brought fresh budget discussions, and the IMF programme’s performance metrics through March were broadly on track, providing a reassuring framework for lender confidence and Jamaica’s external financing access.
Looking Ahead
The Fed’s April 26 to 27 meeting is expected to be a hold, with the next rate increase most likely in June or September. The ECB’s massive stimulus package will need time to feed through to credit conditions and inflation before its effectiveness can be assessed. The UK’s EU referendum campaign is intensifying ahead of the 23 June vote, and financial markets are beginning to price in the uncertainty. For Jamaica, the new fiscal year begins in April, and the IMF programme review cycle will assess compliance with fiscal and monetary targets. The NHT’s spring scheme openings and the beginning of the summer tourism season will define the domestic property and mortgage market outlook through the second quarter.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com
Visit our YouTube Community ↗