Fed interest rate hike pushes up local mortgages
(CNS): The US Federal Reserve raised interest rates by a quarter percentage point this week, the eighth increase in less than a year in the battle against inflation. Though the hike was the smallest since March last year, it will still push interest rates on local loans and mortgages to at least 7.5%. This rapid boost in borrowing costs is likely to slow down, with signs of smaller hikes to come. But even as the higher interest rates have begun cooling inflation in the United States, prices are still climbing.
“We’re going to be cautious about declaring victory and sending signals that we think the game is won because we’ve got a long way to go,” US Fed Chairman Jerome Powell told reporters on Wednesday.
Here in Cayman, the cost of monthly mortgage payments has doubled over the last year at a time when the local inflation rate has reached record levels, running at 12% in the summer but dropping to 9.2% at the end of September.
The latest increase in loan rates comes as the government’s Electricity Assistance Programme (EAP), which had been extended until the end of 2022, comes to an end and residents will be receiving their first CUC bills since the summer without that assistance. Although gas prices are dropping at the pump, groceries, rents and utilities are still very high.
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Category: Banking & money, Business
Help yo.
Shameful minimum wage of $4.50 or $6 hr is causing cheap labor imports, welfare state, local unemployment and property losses.
While the Minimum Wage Committee is STILL Asleep!!
The Federal Reserve Board is a federal agency. The 12 Federal Reserve Banks are privately owned by the banks in their territories. Their presidents are members of the Federal Reserve Board along with board members nominated by the president. All very complicated. The fed funds rate charged by the Federal Reserve affects the cost of borrowing for US banks and they raise their rates accordingly. Cayman banks mostly use US banks as their correspondents and have to pay the higher rate on any borrowing and so they charge their customers accordingly. You could switch to the Bank of England but it would cost more.
This would be applicable if the local banks borrowed money from US banks to lend in Cayman, but they do not.
Butterfield Bank shows loans including mortgages of US$5bn in it’s consolidated Sept. quarterly results. None of these are financed by borrowing from US banks.
They are financed by funds deposited from local people, businesses and offshore companies. Butterfield had US$3bn in non-interest bearing deposits and US$9bn in fixed deposits, paying between 2.25% and 2.7% for a one year deposit. Butterfield’s effective rate interest on the funds they lend out at 7.5% is less than 2%.
Good work if you can get it.
Sad part is local banks are so greedy. They only fix the rate for maximum 5 years whereas US bank have the option to fix for life of the mortagage. But here interest rate goes up based on US Fed.
If locals were given an opportunity to fix the rates most of the people would have fixed it for life of the mortgage when it was too low 2020 and 2021.
And when interest rates drop below your fixed rate, then you’re paying higher and don’t benefit from falling rates.
meanwhile our media-endorsed realtors are saying….’its a great time to buy!’…..zzzzz
CNS: Prime rate moving to 7.75%, not 7.5% as stated in the article.
Latest Fed interest rate hike further widens cost of living for 34,000 foreign workers, majority of whom are working for Caymanian permit holders for KYD$6/hr or less, when there is work for them.
Shocking that minimum wage is stuck at $6. Less than $1,000 per month.
Have to work 2 hours just for a Subway sandwich.
minimum wage does not work
Can someone in the Banking sector explain why the Federal Reserve (a privately owned bank) in the USA dictates the local mortgage rates? As far as I’m aware our local banks are not a part of the US Banking system, so why?
The Federal Reserve is not a privately owned bank. 😂 Cayman follows the Feds interest rate changes because a cayman banking system is non existent.
The Federal Reserve is as federal as FedEx. Christmas 1913
Well, Cayman has opted (THEIR choice) to tie the Cayman currency to the United States. Sooooo, when interest rates from the US Fed goes up, amazingly (sarcasm) the Cayman interest rates goes up. Sorry for the lesson in Pre-economics 101, 7’th grade.
“interest rates….goes up”.
Maybe go back to 7th grade and improve your grammar 🙂
Sorry my West Bay education did not impress you.
KYD is fixed to USD and government holds 100% USD to back it. Therefore Cayman prime does not need to move in conjunction with USD rate. We don’t have a floating currency and it isn’t used or even accepted anywhere outside of Cayman.
Further Cayman prime rate is 300 bps above USD Prime rate. Explain that one for us great one. Sanctimonious ass.
If banks like Butterfield (see earlier comment further above) are not borrowing from US banks, why would the Prime rate need to move?
CNS, is there a way to look at the financials of the Cayman banks and determine the amount of US borrowing by the Cayman banks? Perhaps an article outlining this would be helpful by comparison to the total deposits/assets held by the relevant banks.
KYD lending rates are equally affected by the rate hikes so there is no distinction it seems between borrowing in USD or KYD. If Cayman banks are not borrowing USD from US banks, failing to see the correlation and need to hike the rates exactly as the US Fed is doing. Appreciate KYD is fixed to USD and all, but the above warrants further explanation.
Cayman can stop tying it’s currency to the US’s if it wants. Then you can put a stop watch on the entire Cayman economy. Sorry – you have no market for exports, no manufacturing, no expertise in… anything. You have foreign investment, that is IT! Take away the tie to the US dollar, and you can carry smudge pots again. I for one hope you choose not to.
The economy and most of the government’s revenue is built on the export of financial services. The only reason for having our own currency is for the local banks to rip us off on the fx. All of our income is in usd and all of our expenses are in usd. KYD is an absurdity.
Banks take your money and invest it elsewhere, only to give you back pennies on the profits.
That’s why it ‘dictates’, and also why Banks hate cryptocurrency where you control your money, aren’t charged annual fees etc, but still get the benefit of digital transcations without large fees – ie credit card swiping but with your crypto card.
This is something you can Google from yourself.
6:04, You are certainly stupid. The Federal Reserve is not a privately owned bank. Anywhere else in the western world it would be called The Central Bank. 100% Government owned.
Do some learning.
you are wrong Hubert, now you do some learning
Sorry Herbert. You are incorrect. The Federal Reserve is NOT 100% government owned. You’re perpetuating the myth.
stopthecrime needs to stop the stupidity. the federal reserve acts independently, but turns all annually generated profits to the US treasury. it’s set up that way to keep politics from interfering with monetary policy. it actually is a government agency.
Very simple, our CI currency is backed by USD and most of the local banks base currency is USD. All of our local banks are part of the US banking system in that they need a US correspondent bank to process their USD transactions. That said that doesn’t keep them from still offering 1% on savings accounts.
Remember we depend on USA NOT UK
Read Monster from Jeckle Isle. It explains how the Federal Reserve was birthed into existence.
6:04 is silly 😋
The Cayman Islands cannot have an independent monetary policy, because the Cayman dollar is pegged to the US dollar. Like it or not, it may be a good thing that the local government cannot mess up with their own monetary policy
Enough with the old conspiracy garbage.
https://www.frbservices.org/news/fed360/issues/101521/fed-facts-4-myths-federal-reserve#:~:text=Myth%3A%20Private%20sector%20banks%20own%20the%20Fed&text=In%20truth%2C%20the%20Fed%20is,privately%20chartered%20regional%20banks%20nationwide.
Those 12 privately chartered entities are the voting members. They make the rules. It’s a private entity through and through!
Wibble.
Bless
the CI$ is tied to the US$ – that’s why.