FINANCIAL POLICY COMMITTEE STATEMENT
On the occasion of its meeting on 02 December 2024 and on its review of the financial system’s performance and systemic risks based on data up to September 2024, the Financial Policy Committee (FPC) issues the following statement:
The domestic financial system remained stable during the September 2024 quarter. This stability occurred within a context of general moderation in inflation – both globally and locally – and the resultant easing of monetary policy over the period. Bank of Jamaica reduced their policy interest rate by 50 basis points (bps) during the quarter and committed to reducing its absorption of liquidity from the system through open market operations. Similarly, the United States Federal Reserve along with other major monetary authorities reduced their policy interest rates during the quarter. However, domestic credit conditions among the main financial actors continued to tighten during the quarter, reflecting the lagged impact of past monetary policy decisions. The Jamaican economy was adversely affected by the passage of Hurricane Beryl in July 2024 but every indicator pointed to a fairly moderate impact on production and prices.
The stability of the domestic financial system was reflected in key financial soundness indicators. Leverage, exchange rate risk and deposit-taking institutions’ (DTIs’) asset quality remained relatively stable over the period. However, somewhat higher past due loans (PDLs) precipitated increased credit risk management by some institutions. DTIs also continued to maintain high levels of loan loss provisioning. The financial system reflected improvements in liquidity over the review period while fair values losses improved. The capital base for all the sub-sectors within the system remained above prudential norms.
Notwithstanding the general positive environment, a few downside risks could adversely affect financial institutions’ profitability going forward. Escalation of global geopolitical tensions could increase volatility in bond markets. Slower than anticipated reductions in inflation could cause the monetary authorities to slow or pause rate cuts, which could adversely affect fair valuations in the system. As such, stress tests were conducted to determine financial institutions’ resilience to various credit-related and market risk shocks. The results of the assessments indicate that the financial sub- sectors’ capital buffers remain sufficient to absorb the contemplated macro-financial shocks.
The supervisors will continue to advance relevant policies and regulations, in addition to monitoring and assessing emerging risks, in order to promote financial stability.
Financial Policy Committee 02 December 2024
