Banks agree to delay just as Fed pauses rate hikes
(CNS): The local banks have agreed to give customers a 30-day notice before rolling out any more interest rate hikes, Premier Wayne Panton told a business audience on Wednesday, just after the US Federal Reserve paused its increases on interest rates in the United States after more than a year of regular increases, which have had a knock on effect here.
While the local retail banks have now agreed that they will wait for 30 days before implementing any further increases, there is no indication that they are willing to freeze interest rates, even though some people are now paying as much as 10% interest on loans, especially home loans, which is causing significant hardship for many families.
The decision by the Federal Open Market Committee (FOMC) in the United States marks a shift in how officials view the state of inflation, after dropping to 4% last month in the US. But this does not mean there won’t be further increases, as the US government aims to get inflation down to 2%.
At a press conference following the announcement Wednesday, Fed Chair Jerome Powell said that further rate increases were likely. “Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2% over time,” he said, before warning that inflation was still a problem in America.
Here in Cayman, inflation is currently running at around 6%. Although this is a drop from the highs of 12% last year, it still means that prices are continuing to increase. As he addressed the Chamber of Commerce Annual Legislative Lunch on Wednesday, the premier said that as Cayman continues to import 95% of the goods consumed, we are also continuing to import inflation, making it very hard to manage the ongoing cost of living problem.
With no central bank or regulating authority that sets interest rates, for more than a year, the local high street banks have largely implemented every rate hike rolled out in the US almost immediately.
Recent efforts by Panton to persuade the Cayman Islands Bankers’ Association not to keep increasing rates have still fallen on deaf ears. Last week government agreed to review the current system and consider creating an interest rate-setting authority.
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Category: Banking & money, Business
Ridiculous!!! People don’t need a delayed increase the increases need to stop. The bank’s are just greedy and taking advantage.
cayman needs to implement a board similar to the fed that will control interest ate increases. etc
I’m pretty sure they give a warning period anyway.
Yeah 6 weeks at least, they have done for years, don’t get this article. All cayman banks give a while notice before rate rises hit mortgage payments
UK has arranged this with banks.
UDPact taking the credit.
A thought outside the box, consider this as a BOTC would it be possible to switch to the Bank of England to borrow funds and thus having the same interest rate as Uk funding is currently enjoying? Their prime rate is currently at 4.5%.
No, this isnt quite the UK comparison. The 4.5% rate you are quoting is the UK “Base Rate”, which is the rate banks lend to each other (the rough US equivalent is the US Fed Funds rate, currently at 5.25%).
But a retail UK bank is not going to lend to a retail customer at that rate.
Then you are exposed to the us / gbp exchange rate. The cayman banks borrow mainly from the USA which is fixed against the cayman dollar
Butterfield and other banks on island should show a level of integrity and raise the term deposit rate from a pathetically low 1% return. The current term deposit rate should be well over 3%. Just another example of Caymanians being ripped off.
Ask them to purchase a Treasury bill for you and hold it in custody. You will get 5.5% annual rate.
Versus CUC div yield 5.65%
makes zero bit of difference and will cost banks money that they will claw back through extra fees.
welcome to wonderland……zzzzzzzzzzzzzzz
Not sure Wayne had a look around the room before he started spouting nonsense. It wasn’t his Newlands cow farmer crew he was talking to.
to 1.24 A very insulting and disrespectful comment. Why don’t you just crawl back under whatever rock you escaped from.
It’s been rumored for days that the Fed would not impose a rate hike this go round. The local banks would not have raised their rates anyway. So full of sh%t.
It is rumored that the Fed chairman is in talks with Big Mac & Saunders on how to manage the economies!
Cayman has no chance of regulating interest rates properly and getting it right. If you force mortgage rates down where “the people” want them, the banks will simply stop lending.
A 30-day pause on any increases (or decreases). So there might be one final quarter percent increase at either the US Fed’s July or September meeting, with rates starting a successive series of decreases commencing near year end. So Wayne, you just paused the time we would be able to enjoy the benefit of a rate cut.
So, Wayne, um, thanks, but no thanks. (Wayne, when you go to New York, do you ever fork over money to play the shell game run by street performers?)
Honestly. Do they not understand that this “concession” is not a good thing to have the banks agree when the rates are about as high as they’ll get and will soon be dropping? If not, PACT has finally proven itself even stupider than I thought they were. And that bar has been dropping over the past two years.
Please tighten the large spread on KYD/USD conversions.
That will instantly help.
Banks have no risk from a fixed exchange rate and just make windfall profits on it.
Tighten your own large spread.
Local inflation rate runs 200bpts above USA. It’s not just via predictable variable mortgage rates. It comes from energy and donor class monopolists, retail gas price and grocery owner price collusion, artificial booze premiums, compliance economic drag, and accelerating government waste. Real wages are going backwards. There are no consumer protections, and not even a framework agreement to create a working group in that score. Listening to our simpleton MPs, try to make sense of simple economic principles, in a financial services jurisdiction, is so scary, it’s destabilizing.
On the money, so to speak. Price collusion very much apparent and needs to be addressed.
The scary thing is that Wayne was a senior partner in a financial services part of a major law firm. He understands all that. So why is he coming out with nonsense and platitudes? Because he can’t control his colleagues, because he thinks it will play with the audience, because he doesn’t have the stones to make decisions that are good for the country but may be unpopular with certain parts of our society? Perhaps all of the above!
Please do something about the deposit rates! Seniors are suffering. We have our meagre pension, supplemented by our savings. We do not get salary increases but our expenses go up just the same as yours! My health and house insurance payments have gone up 20%! I’ve cut out luxuries & most meat, but I’m dipping into my savings to cover CUC too. Thank goodness egg prices have dropped. Good protein for 30c per egg. Mango season a blessing too.
Please help the (non civil service) pensioners. I am Caymanian, but single & no children. I did start saving before pensions were mandatory & I’m lucky my mortgage is paid, but my money will run out way quicker than I budgeted for.
Deposit rates on demand deposits in most US retail banks are tiny as well.
But you can ask your local bank to put much of your deposits sitting in a demand bank account into US Treausries (a one-year US T-Bill currently earns around 5.25%). Your local bank’s treasury department will do this for you.
5.25% tbill yield against Fed funds at 8.25% and 6% local inflation, it is at least a 300bpt negative spread for those lucky enough to borrow at prime. If you need to bust the Tbill term, it’s zero interest, less processing fees. Credit cards are close to 20%, plus annual card fee for nil card perks from our regional banks. For the world’s biggest hedge funds center, there are no entry-level consumer mutual fund catalogs, or proper investment choices. CIMA imprisons savers who get unlucky with their broker choice. Archaic is too generous a characterization for the investor climate. Add to that, international bank compliance desks open their exhaustive reviews under assumption that everything and everyone in Cayman is up to no good.
Butterfield charge to buy & sell any security, plus charge a monthly custody fee. Real rate of return much lower than you quote. Where can I get that net rate you quote ?
There should be a standardized IQ test, and attestation of understanding, as part of loan qualification for a variable rate mortgage. Most of our MPs have now broadcast that they would fail elementary school home economics class. Those smart enough to tie their own shoelaces will now have to get screwed for 2 extra months on the easing-end of the parabola, just to preserve the mental inadequacies of those that can’t handle grownup land. This Caymanian is seriously considering selling properties, closing business and moving onshore to where things are allowed to make a little more sense. It’s cheaper there.
It’s obvious that people are given / sold mortgages and they don’t have a clue what they mean, how they work etc.
And it’s also obvious that our MLA’s don’t have a clue what things mean or how they work either. Idiocracy in full effect.
Maybe not but they sure know how to collect a huge paycheck for not doing anything use-full.
Great job, Wayne. Got the banks to agree to a 30-day notice of change period (up or down) at the likely crest of a high interest period. Way to give them an extra month of interest rates each segment of the way down.
Yep, ultimately very little changes from the bank’s perspective
Wayne, you are truly a moron, I sincerely hope that this is not set in stone, because for the next 24 months, all we are likely to see is an extra month of the higher interest rates each time they go down. I thought you were one of the only two intelligent ones in this sh!tshow of a Government, it seems not.
this is exactly correct. The banks cant believe how lucky they just got!
@10:34, Don’t worry, once rates start to fall, politicians will be back begging the banks to lower rates immediately without any notice. Lol
All this happened because Honorable McKeeva stood up for us people. We love you Honorable McKeeva!
Funniest part is that they know the plateau is about to be reached and also included a 30 day notice period for decreases in their agreement.
Guess who wins in the longer term?
Cayman MPs are execrable, but interest rates are nowhere near their peak, so the complaints that they have prevented people from benefiting from imminent decreases in interest rates are, respectfully, misguided.*
Please see:
Federal Reserve skips rate rise but signals two more increases on the way, FT, 14 June, https://www.ft.com/content/1fa66c1e-f485-4220-9ef5-fb2e391469f1
“The Federal Reserve signalled its support for two more interest rate rises this year, including one that could be implemented at its next meeting in July, even as it skipped an increase for the first time in more than a year. … Most policymakers are projecting two additional quarter-point increases this year in a move that would lift the benchmark rate to between 5.5 per cent and 5.75 per cent, according to an updated “dot plot” published on Wednesday that collates officials’ forecasts until the end of 2025.”
And this comment underneath the article, by former Bank of England economist, Tim Young:
“The idea of a “skip” is nonsense. It would not be unprecedented for the Fed to make finer adjustments than ¼%, so if the FOMC genuinely still believes that they are likely to raise the Fed funds rate at their next meeting, the rational move would be to tighten by, say, ⅛%.
Let’s be frank about this. The Fed, and all the other central banks in the groupthink community have screwed up (the Fed arguably less than the others, but they are on the hook of targeting average inflation) by being too hesitant to tighten, and too ready to ease, as far back as the mid-1990s. They now face a situation where, in order to regain control of inflation sustainably, the monetary policy tightening required is going to crush key asset prices (houses in the UK, stocks in the USA, Italian government bonds in the Eurozone) and stick the central banks, and ultimately the taxpayers, with large losses on their recklessly accumulated QE portfolios. So the groupthink central banks are looking for intellectual excuses to stall tightening, presumably in the hope that “something turns up” and they, or at least the present incumbents, don’t have to do it.
Ideally, the delaying tactics suggest stern will to tighten in the future if necessary, in the hope of retaining credibility by words. That may well have been the motivation for average inflation targeting – to avoid being cornered into tightening monetary policy as the pandemic receded, while still sounding “vigilant”. The idea of a “skip” is similar. There is a veritable industry in finding clever excuses to avoid monetary policy tightening – raising the inflation target is another.
The danger is that the tricks deplete central banks’ credibility and force them to tighten harder. As Solzhenitsyn wrote: “We know that they are lying, they know that they are lying, they even know that we know they are lying, we also know that they know we know they are lying too, they of course know that we certainly know they know we know they are lying too as well, but they are still lying.”. Time for a change of approach, perhaps?””
Interest rates are still extremely negative in real terms – that is to say, they are below the actual rates of inflation in all the major economies (US, EU, UK).
When Paul Volcker eventually crushed inflation in the 1980s, he only did so by raising interest rates above the actual rate of inflation. Unfortunately, current central bankers lack the backbone to admit that by printing money, suppressing interest rates and inflating asset prices (e.g. property) since at least the early 1990s (and the most egregiously after the GFC and during the Western policy overreaction to covid), they screwed up abysmally.
My predictions:
1. Central bankers will continue to slowly raise interest rates.
2. The pace of rate increases will be enough to cause economic pain, but not enough to actually suppress inflation: the worst of all worlds.
3. Inflation – and its accomplice in societal immiseration – currency debasement, will continue.
4. Something will break – for a while earlier this year, it looked like bank insolvencies (e.g. SVB, CS, et al).**
5. Cue 1970s/1920s-esque recession/depression.
6. The damage done by (6) will greatly exceed what would have happened if central bankers found their backbones at (1), and ‘did a Volcker’ by administering effective but temporary medicine in the form of positive real terms interest rates.
If you want a positive conclusion, I offer this this: Cayman is far better placed to weather the storm compared to most highly-indebted countries with their failing post-WWII welfare state experiments, which will struggle to service debt and control population unrest.
* I can’t believe that I’m defending Cayman MPs, but at least in this narrow respect, it’s only fair to do so.
** Contagion was averted by the Fed removing the USD$ 250k deposit protection ceiling, thus staunching bank runs (at the cost of an immense moral hazard: all banks are now backstopped by the USG, i.e. ‘too big to fail’, so incentivising an ever-greater risk spiral by competing banks).
Why the downvotes? The Fed has explicitly stated that it intends to increase rates at least twice more this year, so assertions to the contrary are plainly false.
The Fed is also Data Dependent and was talking down the market.
If they hadn’t threatened more hikes the stock market would have gone even higher… they don’t want that right now.
Because while a couple of interest rate increases may be coming, the slowing of the process, the growing pressures against continued increases, and other factors do make it more likely we’re near the crest. Being close to the top of the hill and stating there’s a long way to go is likely why you’re getting downvoted.
History will prove you wrong.
Source for real rates being “negative” re inflation? This source suggests otherwise https://twitter.com/TimmerFidelity/status/1669357926908305412