Publication date: 5 May 2023 | Covering: April 2023
Monthly Briefing
- US Federal Reserve raises to 5.00–5.25 per cent on May 3 — two days ago; tenth consecutive hike
- BOJ overnight rate holds at 7.00 per cent; above-target inflation justifies continued restriction
- NHT July 1, 2023 reforms announced: J$7.5 million limit and 5 per cent band confirmed for eight weeks’ time
- Current NHT framework: J$6.5 million limit; 0, 2, 4 per cent rate bands until July 1
- Jamaica inflation ~8 per cent; meaningful improvement from 2022 peak but target still distant
- SVB banking stress and global credit tightening: modest additional headwind for Jamaica
US Federal Reserve May 3 Hike: Fresh News and Global Implications
Two days before this review goes to press, the US Federal Reserve raised the federal funds rate by a further 25 basis points at its May 2 to 3 Federal Open Market Committee meeting, bringing the target range to 5.00 to 5.25 per cent. This is the tenth consecutive rate increase in the tightening cycle that began in March 2022 and brings the US policy rate to its highest level since September 2007. Chair Jerome Powell’s post-meeting press conference carried a notably cautious but balanced tone: he acknowledged the cumulative tightening delivered, cited the March failures of Silicon Valley Bank and Signature Bank as creating additional tightening of credit conditions beyond the policy rate itself, and introduced language suggesting the Committee was prepared to pause at a future meeting to assess the cumulative impact of its actions. The markets interpreted this as a conditional signal that the May hike might be the last of the current cycle, though Powell was careful not to commit.
For Jamaica, the May 3 hike is a fresh and immediate input to the monetary environment. The federal funds rate at 5.00 to 5.25 per cent represents a significant gap with most global economies that have not tightened to the same degree, sustaining demand for US dollar assets and the associated appreciation of the dollar. For the Jamaican dollar, the sustained attractiveness of dollar assets at high US rates maintains the directional pressure that the BOJ has been managing through its reserves interventions and the country’s solid external account position. The question of whether the May hike is genuinely the last of the cycle will depend on US inflation data over the coming weeks and months.
The ongoing uncertainty about the US rate path has direct implications for the BOJ’s own decision-making. The Bank of Jamaica’s ability to cut domestic rates before the US Federal Reserve does is constrained by the exchange rate risk of widening the interest rate differential. If Jamaica were to cut while the Fed is still hiking or holding at elevated levels, the resulting narrowing of the differential could accelerate Jamaican dollar depreciation, feeding imported inflation and undermining the very purpose of the rate cut. The BOJ has been explicit that it will wait until Jamaica’s own inflation is durably within the target range — a condition that is likely to be met in 2024 — and that the global monetary environment will be a factor in its timing decisions.
BOJ: Holding at 7.00 Per Cent Through the Plateau
The Bank of Jamaica’s overnight policy rate remains at 7.00 per cent per annum, the level it has occupied since November 2022. The Bank’s Monetary Policy Committee most recently met in February and April 2023, maintaining the rate unchanged on both occasions and reiterating the need for sustained restrictive conditions until inflation returns to the 4.0 to 6.0 per cent target range. Jamaica’s annual CPI inflation, while declining from the 10 to 12 per cent readings of 2022, remains in the 7 to 9 per cent range — still materially above the target and justifying the BOJ’s cautious stance.
The Jamaican economy’s underlying performance in 2023 has been broadly positive. Tourism arrivals have continued their post-pandemic recovery, remittances from the diaspora have remained strong, and agricultural output has been generally satisfactory. These real-sector positives have provided the BOJ with the economic context in which to maintain restrictive monetary policy without causing significant growth damage — a consideration that is always part of the central bank’s mandate alongside inflation control.
For Jamaica’s commercial mortgage market, the BOJ’s hold at 7.00 per cent through April 2023 means that the elevated rate environment continues without relief. Deposit-taking institutions are pricing commercial mortgages at 8 to 12 per cent, reflecting both the policy rate and the broader cost of funds in a market that has priced in the sustained tightening. First-time buyers who require commercial mortgage finance to complete property purchases face the full impact of this environment. The NHT provides a critical safety valve for eligible contributors, but the commercial market remains expensive and is likely to remain so until the BOJ’s easing cycle — widely expected in 2024 — begins to flow through into lending rates.
NHT July 1, 2023 Reforms Confirmed: Eight Weeks Away
The National Housing Trust’s landmark mortgage reforms, announced in March 2023, are now confirmed for implementation on 1 July 2023 — approximately eight weeks from the date of this review. The reforms represent the most significant update to the NHT’s product offering in several years and have been warmly received by contributors, estate agents, developers, and housing policy advocates. The key changes are well-publicised: the individual open market loan limit will increase from J$6.5 million to J$7.5 million, with a J$8.5 million option for qualifying properties valued at J$12 million or less; a new 5 per cent interest rate band will be introduced for contributors earning above J$100,000 per week; and multi-applicant ceilings will rise to J$15 million for two contributors and J$21 million for three.
In the meantime, the current NHT framework remains fully in effect. Contributors purchasing properties today operate under the J$6.5 million individual limit, the 0, 2, and 4 per cent rate bands, and the multi-applicant ceilings of J$13 million and J$19.5 million for two and three contributors respectively. For contributors who are close to completing a purchase but can afford to wait, the July 1 date presents a meaningful incentive to defer: those accessing the higher limits will have an additional J$1 million of NHT finance available, which can reduce the commercial mortgage supplement required — or make previously unaffordable properties achievable within the NHT system alone.
Global Banking Stress and Jamaica’s Financial Sector
The failures of Silicon Valley Bank and Signature Bank in the United States in March 2023 — and the subsequent acquisition of Credit Suisse by UBS in Switzerland — raised global concerns about financial sector stability that have persisted through April and into May. The immediate contagion risk to Jamaica’s banking sector is assessed as limited: Jamaica’s commercial banks and deposit-taking institutions are primarily funded by domestic deposits and do not have the concentrated venture capital and technology sector exposures that made SVB particularly vulnerable. The Bank of Jamaica has not identified any significant spillover effects on the Jamaican financial system from the US banking stress.
The broader macroeconomic effect of the US banking stress is more relevant to Jamaica than the direct financial contagion risk. The credit tightening that is rippling through the US banking system in the aftermath of SVB — as banks reduce lending, tighten underwriting standards, and build liquidity buffers — acts as an additional monetary tightening on top of the Federal Reserve’s rate hikes. This indirect tightening contributed to the Fed’s own assessment that its May hike might be the last of the cycle, as the banking sector’s self-imposed credit restriction reduces the need for further official rate increases. For Jamaica, the US economy’s ability to absorb this credit tightening without a hard recession is important for diaspora employment and remittance flows.
Jamaica’s Inflation and the Housing Cost Component
Jamaica’s headline inflation in April 2023 is estimated in the 8 per cent range on a point-to-point basis, continuing the gradual deceleration from the 2022 peak. The BOJ’s own projections anticipate the inflation rate reaching the 4.0 to 6.0 per cent target range in 2024, driven by the continued drop-out of elevated 2022 comparison months and the moderation of global commodity prices. Housing costs — including rents, maintenance, and the cost of construction — remain a component of Jamaican CPI that has been persistently elevated, reflecting the structural supply-demand imbalance in the residential property market. This structural inflation element is more resistant to monetary policy than imported commodity price inflation and will moderate only as housing supply increases relative to demand.
Looking Ahead
The immediate near-term focus is the US Federal Reserve’s June 13 to 14 meeting. If US inflation data over May supports the assessment that the May hike was sufficient, a June hold — the first pause in the tightening cycle — is likely. A confirmed US pause would shift the global narrative toward the question of when cuts begin, rather than how many more hikes remain. For Jamaica, this shift in narrative would provide the BOJ with a more supportive global context for its eventual easing.
Domestically, the approach of the July 1 NHT reforms is the dominant event for Jamaica’s housing finance market. Contributors, agents, developers, and lenders are all positioning for the new framework, and the market is expected to see a pickup in activity as July approaches and new applications under the higher limits begin to be processed. The eight weeks between now and July 1 are a period in which potential buyers would do well to confirm their NHT eligibility, understand the new limits applicable to their situation, and identify properties that will fall within the revised framework.
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.
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