Publication date: 5 May 2024 | Covering: April 2024
Monthly Briefing
- BOJ overnight rate holds at 7.00 per cent; February QMPR confirms sustained restrictive posture
- US Federal Reserve holds at Apr 30–May 1 meeting; Chair Powell signals cuts delayed further
- Jamaica CPI decelerating toward 6 per cent target ceiling; March reading approaches the band
- NHT J$7.5 million limit now ten months in effect; application volumes remain strong
- Commercial mortgage rates: 8–12 per cent range unchanged; affordability under continuing pressure
- BOJ February Quarterly Monetary Policy Report: easing conditions slowly taking shape
BOJ Holds Steady: The February QMPR and April Posture
The Bank of Jamaica’s overnight policy rate remains at 7.00 per cent per annum through April 2024 and into May. The Bank’s February 2024 Quarterly Monetary Policy Report, published at the time of the February Monetary Policy Committee meeting, outlined the BOJ’s assessment of the Jamaican economy and the trajectory of inflation. The QMPR confirmed the Bank’s expectation that inflation would continue to decelerate through 2024, with a return to the 4.0 to 6.0 per cent target range projected for the latter part of the year. The Bank signalled that the policy rate would remain at its current level until the inflation trajectory provided sufficient confidence for the commencement of easing — a posture the market interpreted as pointing toward second-half 2024 action.
The BOJ’s April 2024 meeting communication maintained this stance. The Bank acknowledged the continued downward trend in headline inflation but reiterated its commitment to a data-dependent approach. With US monetary policy remaining tight and global commodity prices still above their pre-shock levels in some categories, the BOJ saw no basis for premature easing. The Bank’s international reserves position remained comfortable, providing the necessary buffer to manage exchange rate pressures without resorting to aggressive interventions. The Jamaican dollar has maintained relative stability through the period, aided by solid tourism receipts and robust remittance inflows.
For Jamaica’s commercial mortgage market, the continuing hold means that the elevated rate environment of 2022 to 2024 remains in place for now. The BOJ’s signal that cuts are on the horizon has, however, begun to influence market behaviour. Some commercial lenders are quoting improved fixed-rate products to creditworthy borrowers, reflecting an anticipation of lower funding costs ahead. The differential between the best commercial mortgage rates (around 8 per cent for premium borrowers) and the worst (12 per cent or above for higher-risk profiles) reflects the wide range of credit risk pricing in a market that has limited standardisation of mortgage underwriting across institutions.
US Fed’s April 30–May 1 Decision: Cuts Deferred Again
The US Federal Reserve’s Federal Open Market Committee concluded its April 30 to May 1 meeting — just days before this review goes to press — by holding the federal funds rate at the 5.25 to 5.50 per cent target range for the sixth consecutive meeting. The decision was unanimous and widely expected. Chair Powell’s press conference confirmed that the FOMC had not yet gained sufficient confidence that inflation was moving sustainably toward the 2 per cent target, after the first-quarter CPI data came in above forecast. Powell dismissed the possibility of a near-term rate increase, but effectively pushed the timeline for the first cut further into the year. Market expectations shifted after the meeting to price September 2024 as the most likely point of first action, with some possibility of a cut as late as November or December.
For Jamaica, the deferral of US cuts extends the period of elevated global borrowing costs. The US rate corridor at 5.25 to 5.50 per cent — its peak level since 2001 — has been a significant feature of the global financial landscape since July 2023. Its persistence shapes the cost of international capital, the attractiveness of US dollar-denominated assets, and the exchange rate dynamics of small open economies like Jamaica. The BOJ’s ability to cut its own rate ahead of the Fed is constrained by the exchange rate implications of widening the interest rate differential. That said, Jamaica’s robust reserves position and the structural support of remittances provide some room for the BOJ to move first in limited increments if domestic inflation conditions justify it.
Jamaica’s Inflation: Approaching the Target Range
Jamaica’s headline inflation has been on a sustained deceleration path through the first quarter of 2024. The February and March CPI readings showed point-to-point inflation in the 6 to 7 per cent range, approaching but still above the BOJ’s 4.0 to 6.0 per cent target ceiling. The BOJ’s February QMPR projected continued deceleration through the first half of 2024, with the 6.0 per cent ceiling likely to be breached on a sustained basis in the second half of the year. The April 2024 CPI data, to be published by STATIN in mid-May, will provide an important next data point; the prevailing trend suggests a reading in the 5.5 to 6.5 per cent range.
The composition of Jamaica’s inflation continues to reflect imported price pressures more than domestic demand-driven factors. Food and non-alcoholic beverages, a major component of the CPI basket for lower-income households, have moderated as global grain and vegetable oil prices have retreated from their 2022 peaks. Energy — petroleum products and electricity — remains a cost pressure point given Jamaica’s near-total dependence on imported fuel. Housing costs, including rents and maintenance, have also been a component of sustained inflation, reflecting the demand-supply imbalance in Jamaica’s residential market. These structural price pressures are distinct from the cyclical commodity shock, and their persistence is a reason for the BOJ’s caution about declaring the inflation battle won.
NHT at Ten Months: The July 2023 Framework
The National Housing Trust’s July 2023 product framework — now ten months in operation — has broadly performed as intended. The J$7.5 million individual loan limit has expanded access for contributors in the middle and upper-middle income ranges, many of whom previously found the J$6.5 million ceiling insufficient for properties in their target communities. The 5 per cent rate band for weekly earners above J$100,000 has brought a segment of higher-income contributors into active NHT borrowing who previously had limited incentive to use the Trust’s products. Multi-applicant loans at J$15 million (two contributors) and J$21 million (three contributors) have expanded options for households that pool income to access better-quality housing.
Looking ahead, the question of whether the NHT will revisit its loan limits before or during 2025 is a live discussion. Property prices in Jamaica have continued to appreciate since July 2023, eroding the real value of the fixed nominal loan ceiling over time. A J$7.5 million limit that was meaningful in July 2023 purchases somewhat less property in May 2024 given the appreciation of residential values over the intervening period. The NHT’s board and government will weigh the cost of higher limits — which increases the Trust’s exposure to larger individual loans — against the policy imperative to keep affordable finance accessible as nominal property prices rise.
Housing Supply and the Structural Deficit
Jamaica’s structural housing deficit of more than 150,000 units remains the defining constraint on the residential property market. Financing improvements, however significant, cannot create supply: the physical construction of adequate, affordable housing across Jamaica’s population centres requires land, infrastructure, labour, materials, and the project management capacity to deliver at scale. The NHT’s pipeline of 41,000-plus housing solutions is the most substantial organised response to this deficit, but even full delivery of the pipeline — projected over several years — would address only a portion of the gap.
The private development sector has continued to bring product to market across price ranges, from affordable townhouses and apartments in suburban Kingston and Portmore to high-specification residences in established communities. The viability of affordable private development is, however, sensitive to construction costs and financing: in the current elevated-rate environment, developers require a higher return on capital to justify investment, which tends to push private-sector supply toward the mid-to-upper price ranges where margins are more resilient. The expected easing of borrowing costs in the second half of 2024 may provide some relief for developers of more affordable projects.
Looking Ahead
The most closely watched near-term event for Jamaica’s mortgage market remains the BOJ’s next Monetary Policy Committee meeting, expected in June or July 2024. With the April CPI data due in mid-May, the BOJ will have an important new data point before that meeting. If inflation continues its approach toward the 4.0 to 6.0 per cent range, the Committee may strengthen its forward guidance on cutting, or even deliver the first cut at the June meeting. The August meeting remains the consensus date for the first action, but the June meeting cannot be ruled out if the data is sufficiently encouraging.
For buyers and borrowers, the landscape through mid-2024 is one of elevated but stabilising mortgage costs, with relief expected progressively through the second half of the year and into 2025. Those with the financial means to purchase now face a straightforward calculation: act now at existing rates, accepting that rates will likely decline, but also that property prices may continue to appreciate; or wait, accepting some rate improvement at the risk of higher entry costs. The structural shortage of affordable supply means that the option to wait indefinitely is not risk-free.
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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