Monday 19 August, 2019

BOJ reduces cash reserve requirement to boost lending

The entrenchment of macroeconomic conditions in Jamaica will see the Bank of Jamaica (BOJ reducing the cash reserve requirement for deposit-taking institutions by a further two percentage points to 7 per cent, effective June 3.

The resulting effect is that there will be more money available to these institutions to lend to businesses and households.

According to the BOJ, the move will increase liquidity in the financial system by $12.3 billion and thereby support the expansion of credit to businesses and households at lower rates and on better terms.

The BOJ has previously lamented that commercial banks were not reducing interest rates in line with its lowering of the cash reserve requirement to facilitate the reduction.

“As a consequence of the (latest) reduction in the cash reserve requirement, the overall liquid asset requirement will fall to 21 per cent, effective 03 June 2019,” the BOJ said.

It said there will be no change to the reserve requirements applicable to foreign currency prescribed liabilities.

The BOJ explained that the series of reductions of the cash reserve requirement is possible given the entrenchment of macroeconomic stability in Jamaica. It said the timing and scope for the next reduction will be determined on the basis of assessments of market conditions.

The cash reserve requirement is the amount of money that deposit-taking institutions are required to hold at the central bank against prescribed liabilities.

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