Publication date: 5 September 2023 | Covering: August 2023
Monthly Briefing
- BOJ overnight rate holds at 7.00 per cent; inflation above target but trajectory improving
- US Federal Reserve July 26 hike to 5.25–5.50 per cent widely viewed as the final move of cycle
- Jamaica CPI still in 7–8 per cent range; sustained deceleration from 2022 highs continues
- NHT July 2023 reforms two months active; J$7.5 million limit and 5 per cent band taking hold
- Hurricane season peak months: market pauses typical; diaspora and investment demand resilient
- September Fed meeting approaching; hold widely expected; dot plot will shape 2024 rate outlook
BOJ Holds at 7.00 Per Cent: The Long Wait for Target
The Bank of Jamaica’s overnight policy rate remains at 7.00 per cent per annum as Jamaica moves through the most active phase of the Atlantic hurricane season. The rate has been at this level since November 2022, a period now extending to ten months, as the Bank maintains the restrictive posture needed to bring headline inflation from the elevated readings of 2022 into the 4.0 to 6.0 per cent target range. Jamaica’s most recent CPI data shows point-to-point inflation in the 7 to 8 per cent range — a meaningful improvement from the 10 to 12 per cent readings at the 2022 peak, but still well above the target and requiring continued patience from the monetary authorities.
The drivers of Jamaica’s above-target inflation in 2023 are a combination of the persistent base effects from the 2022 commodity shock — which has not yet fully dropped out of the annual comparison — and ongoing structural cost pressures related to Jamaica’s dependence on imported energy and food. The global moderation of commodity prices that has been underway through 2023 is working through Jamaica’s CPI with a lag, and the trend of deceleration is clear in the monthly data. The BOJ expects that this trajectory will continue, with inflation approaching the target range in 2024 if no significant new external shock disrupts the pattern.
For Jamaica’s commercial mortgage market, the tenth month of the 7.00 per cent hold means continued pressure on affordability. Borrowers accessing commercial mortgage products face rates of 8 to 12 per cent, representing a meaningful step up from the lower-rate environment of 2020 and 2021. The NHT’s July 2023 reforms have provided a partial offset for NHT-eligible contributors, expanding both loan limits and rate band coverage, but the commercial market remains expensive relative to recent history. Those developers, investors, and buyers who were able to secure financing in 2021 at lower rates are in a significantly more advantageous position than new entrants to the market today.
The Federal Reserve’s July 26 Hike: Likely the Last of the Cycle
The US Federal Reserve raised the federal funds rate by 25 basis points at its July 25 to 26 meeting, bringing the target range from 5.00 to 5.25 per cent to 5.25 to 5.50 per cent. This was the eleventh hike in the current tightening cycle, which began in March 2022, and it brings the federal funds rate to its highest level since 2001. Chair Jerome Powell’s post-meeting comments were notably balanced: he acknowledged the progress made on inflation and declined to pre-commit to further hikes, but also declined to suggest that the July move was the last. The language left open the possibility of a September hike while making it clear that the Committee was becoming more selective about when further tightening was needed.
Market interpretation of the July meeting has solidified around the view that the hike was the last of the cycle, or close to it. US inflation has continued to moderate through 2023, and the strength of the US labour market — while resilient — shows some signs of softening at the margin. The September 19 to 20 FOMC meeting is widely expected to deliver a hold, maintaining the rate at 5.25 to 5.50 per cent while the Committee assesses whether additional tightening is required. The updated dot plot at the September meeting will provide the clearest indication yet of the Fed’s view on the terminal rate and the likely timing of the first cut.
For Jamaica, the apparent peaking of the US rate cycle is a significant positive contextual development. The interest rate differential between the United States and Jamaica, which has been a factor in exchange rate dynamics and the BOJ’s policy room, will not widen further if the Fed has paused. Jamaica’s international reserves remain at an adequate level, and the Jamaican dollar has been managed within an orderly corridor. The external account, supported by strong tourism earnings and robust remittance inflows, provides the foundation for continued exchange rate stability even in an environment where the rate differential remains material.
NHT’s July 2023 Reforms: Two Months In
The National Housing Trust’s comprehensive product update effective 1 July 2023 has now completed two months of operation. The package of changes represents the most significant adjustment to the Trust’s mortgage terms in several years. The individual open market loan limit has increased from J$6.5 million to J$7.5 million, providing an additional J$1 million of NHT finance to eligible contributors purchasing in the open market. For properties valued at J$12 million or less, the individual limit rises further to J$8.5 million under the new framework. Multi-applicant loans now carry ceilings of J$15 million for two-contributor facilities and J$21 million for three contributors, up from J$13 million and J$19.5 million respectively under the previous framework.
The structural addition of a 5 per cent interest rate band for contributors earning above J$100,000 per week is perhaps the most significant long-term policy change in the July 2023 package. The previous framework had offered 0, 2, and 4 per cent bands, with the 4 per cent tier serving as the ceiling for all higher earners regardless of income. The new 5 per cent band — which, while the highest NHT rate, remains dramatically below commercial market rates of 8 to 12 per cent — creates a more progressive structure that reflects the BOJ’s and the government’s intention to keep higher earners engaged with the NHT system rather than defaulting entirely to commercial alternatives. Early take-up of the 5 per cent band suggests that the product is reaching its intended audience.
The Hurricane Season and the Property Market
August and September are statistically the most active months of the Atlantic hurricane season, and Jamaica’s property market typically experiences a seasonal deceleration during this period. New development launches are generally held until October, when buyers’ attention re-engages with property and the diaspora viewing season begins to build toward the Christmas and New Year period. In August 2023, this seasonal pattern has been broadly maintained: transaction volumes are lower than in the first half of the year, and new supply coming to market has been limited. The underlying demand and supply conditions have not changed, but the market is in a seasonal pause.
Investor and diaspora purchasing — which is less seasonal than end-user buying — has continued through August at a more subdued but steady level. The north coast communities of St. Ann, Trelawny, and Westmoreland, where diaspora buyers are most concentrated, have maintained activity in the premium residential and agricultural land segments. In Kingston, commercial property and premium residential transactions have continued, often driven by buyers who have been patient through a long search process and have found properties that meet their requirements.
Looking Ahead
The US Federal Reserve’s September 19 to 20 meeting is the next major event for global monetary markets. A hold at 5.25 to 5.50 per cent is the consensus expectation; the key communication will be the updated dot plot, which will provide the Committee’s own projection of where rates are headed over the next two to three years. If the dots show a lower terminal rate or an earlier first cut than the previous projection, the global rate narrative will shift toward easing. If the dots remain stubbornly high, the “higher for longer” narrative will be reinforced.
For Jamaica, the BOJ’s next Monetary Policy Committee meeting and the CPI releases for August and September will provide the domestic picture. As the 2023 annual comparison base gets easier — as the most acute months of the 2022 inflation shock drop out of the annual calculation — the point-to-point inflation rate should continue to decline toward the target range. The fourth quarter of 2023 holds the promise of a more active property market as the hurricane season ends, the diaspora visiting season builds, and the expectation of 2024 rate relief begins to translate into active purchasing decisions.
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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