Financial Analysts have expressed concern that rising interest rates will begin to have a serious negative impact on people with personal loans in 2023. 

Speaking on Taking Stock with Kalilah Reynolds, Analyst Dennis Chung said that while the Bank of Jamaica’s increases in its base policy rate are justifiable, the trickle-down effect could have negative implications for borrowers in the new year. 

“The biggest concern would be on the existing loan portfoilos. If you have too much of an interest rate increase then it will start to affect banks’ non-peforming portfolio and that is the real concern,” Chung said.

The BOJ has increased its base policy by 650 basis points since October 2021 to help curb inflation. According to the Statistical Insitute of Jamaica, November’s inflation rate was 10.3%. 

Chung noted that the BOJ’s moves were driven partially by the US Federal Reserve’s aggressive moves with its interest rates. 

“I personally think the US has gone a bit too far with its latest hike. I think they’re being too hawkish,” he said. 

The US increased interest rates a further 50 basis points to a range between 4.25% – 4.5%, a 15-year high. 

“Now, the BOJ has to follow suit with its interest hikes. If they don’t then the spreads between interest rates between Jamaica and the US will be small and that will lead to currency depreciation,” he said.

As a result of these increases in rates, the Analyst said the purchasing power of the average Jamaican will decrease. 

“There’s going to be reluctancy to take on new loans,” he said. 

Chair of the Economic Programme Oversight Committee, Keith Duncan, said that commercial banks have been slow to pass on the BOJ’s hikes to existing loan customers for fear that it will have a negative impact. 

“What banks were trying to do was pass on higher interest rates to new customers,” Duncan said. 

Duncan, who is also the CEO at JMMB Group, said banks have to come up with innovative ways to help customers.

“Banks will need to work with individual customers, because we don’t want to push our individual customers into default,” he said. 

“It doesn’t work for the customer and it doesn’t work for the bank because now they have to go and make provisions for delinquent loans,” he added. 

Good news for 2023

On the other hand, both men agreed that Jamaica’s inflation rate has peaked and expect to see the numbers lower in the new year. 

“In Jamaica, we have been seeing falling oil prices and that is always a significant piece of data. So I think the interest rate hikes are starting to effect,” Chung said.

“Even in the US prices have been coming down. We’ve also seen in the US that retail sales are down. That is always an indication that demand is falling,” he added.

Duncan noted that Jamaica’s economy continued to grow this year despite numerous challenges. 

He said he expects the trend to continue into the new year.

“Despite all the challenges, namely the latent issues of COVID and secondly the Russia/Ukraine war, it’s quite impressive that Jamaica’s economy was able to recover so strongly within two years,” he said. 

He added that GDP levels are almost back to pre-COVID levels.

WATCH THE INTERVIEW HERE