Publication date: 5 October 2024 | Covering: September 2024
Monthly Briefing
- BOJ announces second 2024 rate cut to 6.50 per cent effective October 1; two cuts in six weeks
- US Federal Reserve delivers watershed 50 basis point cut on September 18; global easing cycle underway
- Jamaica inflation continues decelerating trend; target range entry approaching as September data awaited
- Commercial banks begin repricing variable mortgage products following BOJ easing signals
- NHT mortgage pipeline strong; J$7.5 million limits unchanged; 5 per cent rate band active
- Exchange rate stable; international reserves robust; external accounts support further BOJ easing
BOJ’s Sequence of Cuts: 6.50 Per Cent From October 1
Just days after this review goes to press, the Bank of Jamaica’s second rate cut of 2024 takes effect. The Monetary Policy Committee announced on 30 September that the overnight policy rate would be reduced by 25 basis points, from 6.75 per cent to 6.50 per cent, with effect from 1 October 2024. This follows the first cut of the cycle — from 7.00 per cent to 6.75 per cent, effective 21 August — announced just weeks earlier. Two cuts in less than six weeks represents a more deliberate pace of easing than markets had anticipated at the start of the year, when many observers expected the Bank to hold well into 2025.
The Bank of Jamaica’s September decision cited several supporting factors: the sustained trajectory toward the 4.0 to 6.0 per cent inflation target, the stability of the Jamaican dollar, a comfortable level of net international reserves, and the improved global monetary environment created by the US Federal Reserve’s own pivot. The BOJ’s communication has been careful to frame the cuts as the beginning of a gradual easing cycle rather than an aggressive loosening, and it has declined to publish any forward guidance on the eventual destination of the policy rate. Nevertheless, with two cuts now delivered in rapid succession, market participants are pricing further reductions before year-end.
For Jamaica’s mortgage market, the 50-basis-point aggregate reduction since August is beginning to manifest in product pricing. Deposit-taking institutions with variable rate mortgages tied to the BOJ policy rate have made corresponding adjustments. Fixed-rate mortgage offers have also shifted modestly at some institutions, as the cost of funds in the inter-bank and bond markets has eased in anticipation of further BOJ action. The typical commercial mortgage range of 8 to 12 per cent remains broadly intact, but competitive pressure is emerging at the lower end.
The Federal Reserve’s September 18 Decision: A Turning Point
The most consequential global monetary event of September was the US Federal Reserve’s decision on 18 September to cut the federal funds rate by 50 basis points, bringing the target range from 5.25–5.50 per cent — where it had been since July 2023 — to 4.75–5.00 per cent. This was the Fed’s first rate reduction since March 2020, and the magnitude of the opening cut — double the standard 25-basis-point increment — signalled the Committee’s determination to recalibrate monetary policy after more than two years of tightening. Fed Chair Jerome Powell explicitly framed the move not as a response to economic weakness but as an adjustment commensurate with the progress made on inflation.
The Fed’s pivot has broad implications for Jamaica. The most direct is the reduction in the risk of Jamaican dollar weakness driven by capital outflows in search of higher US dollar yields. With the US rate corridor now declining from its peak, the relative attractiveness of dollar-denominated assets diminishes marginally, supporting Jamaican dollar stability. Secondly, US economic conditions — which affect diaspora employment and remittance capacity — have remained resilient through the tightening cycle, and the Federal Reserve’s confident pivot suggests it sees no deterioration ahead. For the Jamaican mortgage market, this matters because remittance inflows of roughly US$3.3 to 3.4 billion annually are a critical source of the deposits and savings that feed into the domestic housing finance system.
Inflation Momentum: Approaching the Target Range
Jamaica’s headline inflation rate has been decelerating consistently through 2024, tracking a downward path as the commodity price shocks of 2021 to 2022 continue to drop out of the annual comparison base. The August 2024 reading and prior months have shown inflation trending toward the 4.0 to 6.0 per cent target range. The September 2024 CPI data — to be published by STATIN in the coming weeks — will be closely watched as a potential first reading fully within the target. If confirmed, it will mark a significant milestone in the BOJ’s inflation management cycle and validate the rate cuts delivered in August and September.
The drivers of Jamaica’s easing inflation are multiple. Global shipping costs, which spiked dramatically in 2021 and 2022, have normalised. Agricultural commodity prices, a key input for Jamaica’s food basket, have retreated from their post-pandemic highs. Energy costs, though still a significant import burden, have moderated. The BOJ’s own sustained tight policy posture over two years contributed to the demand compression that reduced domestic inflation pressures. The combination of these global and domestic forces has created the conditions for the current easing cycle.
NHT Financing: Steady Demand Amid Policy Continuity
The National Housing Trust’s July 2023 changes — the introduction of a 5 per cent rate band for higher earners, the raising of the individual loan limit to J$7.5 million, and the increase in multi-applicant ceilings — continue to define the NHT’s mortgage product landscape through the second half of 2024. The SMART Energy loan, introduced in 2024 with a ceiling of J$1.5 million, has added a targeted product for residential solar and energy-efficiency improvements, reflecting both the government’s energy security ambitions and the practical reality of rising electricity costs for Jamaican households.
Demand for NHT mortgage facilities has remained consistently strong. The institution’s rate advantage — 0 to 5 per cent against commercial market rates of 8 to 12 per cent — makes it the rational choice for eligible contributors, and the Trust’s housing development pipeline of more than 41,000 solutions provides the supply context within which this demand will eventually be absorbed. The challenge that has persisted for years remains: the quantity and pace of affordable new housing completions is structurally insufficient relative to the accumulated deficit of 150,000 or more units that characterises Jamaica’s housing market.
The External Accounts: A Foundation for Continued Easing
Jamaica’s external financial position provides an important context for the BOJ’s easing decisions. Net international reserves remain at a comfortable level, providing an adequate buffer against external shocks. The Jamaican dollar has maintained its stability through a period of significant monetary policy transition, suggesting that underlying external demand and supply conditions remain balanced. Remittance inflows have been strong through 2024, continuing a multi-year trend of Jamaican diaspora support that has become a structural pillar of the balance of payments. Tourism earnings, though subject to seasonal variation, have remained positive.
For the mortgage market, external stability is not merely a macroeconomic statistic. Exchange rate volatility affects the real purchasing power of Jamaicans buying property priced in or benchmarked to US dollars, including many of the higher-end residential developments that target diaspora buyers or returning residents. A stable exchange rate environment reduces the uncertainty that can defer property purchase decisions, particularly for those whose incomes are in Jamaican dollars but whose aspirational property is priced in US currency.
Looking Ahead
The September CPI release, expected from STATIN in mid-October, will be the most watched piece of economic data in the near term. Confirmation of a first reading within the 4.0 to 6.0 per cent target range would be a symbolic milestone for BOJ policy and would underpin the case for continued easing at the November meeting. The BOJ’s next Monetary Policy Committee decision is expected in November; a third consecutive 25 basis point cut, which would bring the policy rate to 6.25 per cent, is within the range of market expectation.
In the US, the Federal Reserve’s November 7 meeting will be closely followed. The Fed’s September decision opened a new phase of global monetary easing, and its next move — likely a further 25 basis point reduction — will reinforce the international backdrop supportive of BOJ action. For Jamaica’s housing market, the prospect of steadily declining mortgage costs through late 2024 and into 2025 represents a meaningful positive shift in affordability conditions, even if the structural supply shortage remains the most consequential long-run challenge.
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 ↗