Publication date: 5 August 2024 | Covering: July 2024
Monthly Briefing
- BOJ holds overnight rate at 7.00 per cent; easing cycle signal strengthens ahead of August meeting
- US Federal Reserve holds at Jul 30–31 meeting; September cut consensus solidifies in US market
- Jamaica CPI at 5.4 per cent in June; inflation approaching the upper bound of the 4–6 per cent target
- Commercial mortgage rates elevated but borrower expectations shift with easing narrative
- NHT July 2023 product reforms mark one year; J$7.5 million limit and 5 per cent band established
- SMART Energy loan active in 2024; residential solar finance integrates with NHT mortgage suite
BOJ Holds at 7.00 Per Cent; Easing Signal Intensifies
The Bank of Jamaica’s overnight policy rate remains at 7.00 per cent per annum as of the date of this review. The rate has been at this level since November 2022, making the current hold one of the longest sustained plateaus in the BOJ’s modern monetary policy record. However, the Bank’s most recent communications have shifted the market’s interpretation of the path ahead. At its June 2024 meeting, the Monetary Policy Committee signalled that the conditions for rate cuts were approaching, citing the sustained deceleration of headline inflation and the stability of the external accounts. The market has interpreted this signal as a clear indication that the August meeting — scheduled for later this month — may deliver the first reduction of the easing cycle.
The implications of an August cut for Jamaica’s mortgage market are significant. Variable rate mortgage holders — a segment that has seen little relief since the tightening cycle began in 2021 — would receive their first reduction in contractual rates. The impact per borrower will be modest on a 25-basis-point move, but the psychological and market signalling effect of a first cut carries weight well beyond the arithmetic. Prospective buyers who have been waiting for the cycle to turn would have a confirmed data point on which to base a purchase decision, and developers who have deferred project launches on affordability concerns may find new grounds for optimism.
US Federal Reserve Holds; September Cut Increasingly Priced
The US Federal Reserve’s Federal Open Market Committee concluded its July 30 to 31 meeting by holding the federal funds rate at the 5.25 to 5.50 per cent target range that has been in place since July 2023. The decision was widely anticipated, but Federal Reserve Chair Jerome Powell’s post-meeting press conference was interpreted by markets as laying the groundwork for a September cut. Powell noted that the Committee did not need to see further weakening in the labour market to begin easing, and acknowledged that the balance of risks between inflation and employment had shifted. Futures markets responded by solidifying bets on a 25 basis point September reduction.
For Jamaica, the approach of a US rate cut matters primarily through its exchange rate and capital flow effects. A declining US rate corridor narrows the yield differential that has favoured US dollar assets over much of the past two years, reducing the gravitational pull on capital away from markets like Jamaica. It also provides Jamaica’s BOJ with greater room to manoeuvre: a BOJ rate cut that precedes a Fed cut risks creating a wider differential that could weigh on the Jamaican dollar, but with the Fed signalling an imminent pivot, that risk diminishes. The BOJ’s apparent readiness to cut in August may be influenced in part by this improving global context.
Inflation: The June Reading and the Target Range
Jamaica’s point-to-point headline inflation rate for June 2024 was 5.4 per cent. This places the reading above the BOJ’s 4.0 to 6.0 per cent target range ceiling, but just barely so. Combined with May’s 5.2 per cent and April’s 5.3 per cent, the June figure confirms a pattern of inflation hovering just above the upper bound of the target, declining from the significantly elevated readings of 2022 and 2023. The July 2024 CPI data, due from STATIN in mid-August, will be watched closely: if the deceleration trend continues, July could be one of the final above-target readings before entry into range.
The sustained proximity to the target — within one percentage point of the ceiling for three consecutive months — has provided the BOJ with the evidential basis for its shift toward easing. The Bank has been explicit that it will not cut until inflation is durably within or approaching the target range; the current trajectory suggests that condition is close to being met. The composition of the inflation basket continues to reflect imported food and fuel pressures, but these are moderating as global commodity prices settle and the base effects of the 2021 to 2022 spike dissipate.
One Year of NHT’s July 2023 Reforms
July 2024 marks the one-year anniversary of the National Housing Trust’s most significant product reforms since the previous decade. Effective 1 July 2023, the NHT introduced a new 5 per cent interest rate band for contributors earning above J$100,000 per week, raised the individual loan limit from J$6.5 million to J$7.5 million for open market purchases (and J$8.5 million for properties valued at J$12 million or less), and increased multi-applicant ceilings to J$15 million for two contributors and J$21 million for three. In the year since implementation, these changes have expanded access to NHT finance at the upper end of the Trust’s market, drawing in higher-income contributors who previously found the previous limits constraining relative to prevailing property prices.
The first full year of the new limits also provides the NHT with data on take-up rates and default patterns under the revised product structure. Anecdotally, demand for the J$7.5 million product has been strong, particularly in the Kingston metropolitan area and in communities adjacent to major employment centres in St. Catherine. The J$8.5 million product for eligible lower-priced properties has served as a bridge for buyers whose target properties fall just below the J$12 million threshold. As property values have continued to rise through 2023 and 2024, the adequacy of the J$7.5 million ceiling remains a question that the Trust’s board will eventually need to revisit.
SMART Energy Loan and Residential Solar Finance
The NHT’s SMART Energy loan, introduced in 2024 with a maximum of J$1.5 million, represents the Trust’s first product specifically designed for residential energy transition. Eligible NHT contributors can apply for the loan to finance photovoltaic solar panels, battery storage systems, and other qualifying energy conservation installations at their principal residence. The product operates at the same income-banded interest rates as the core NHT mortgage, with repayment periods calibrated to the expected economic life of the installations financed.
The SMART Energy loan arrives at a time of growing pressure on Jamaican households from electricity costs, and a government policy framework that supports the expansion of distributed renewable energy. For mortgage borrowers, integrating solar finance into their NHT facility reduces the need to access more expensive commercial financing for energy improvements. The J$1.5 million ceiling is sufficient to cover entry-level residential solar systems, though more ambitious installations with battery storage may exceed this limit and require supplementary financing from commercial sources.
Looking Ahead
The BOJ’s August Monetary Policy Committee meeting is the most immediately consequential event for Jamaica’s mortgage market. If the Bank delivers its first rate cut since the tightening cycle ended — as its June signalling strongly implies — it will mark the formal beginning of the easing phase that borrowers have been awaiting. A 25 basis point cut to 6.75 per cent would be modest in isolation, but would signal the direction of travel for the following twelve to eighteen months and begin to work through into variable rate mortgage products.
Beyond the August BOJ decision, the US Federal Reserve’s September meeting will shape the global context in which Jamaican monetary policy operates. Should the Fed cut, the international conditions supporting further BOJ easing will be reinforced. For buyers, borrowers, and developers, the balance of signals now points toward a more supportive financing environment in the second half of 2024 than in the first, and the constructive momentum is likely to continue into 2025 provided inflation remains contained and the external accounts hold.
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 ↗