Financial Analyst, Dennis Chung says the move by the Bank of Jamaica, BOJ, to lower its interest rates should create greater demand and lending in the economy.

The central bank announced yesterday that it would cut it’s policy interest rate and reduce the amount of money that deposit-taking institutions, DTIs, must hold in the reserves at the BOJ.

The BOJ says it has taken this move in order to bring inflation back in line with it’s target.

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The BOJ’s reduction in the amount of money banks have in the reserves is expected to free up nearly 17 billion dollars for DTIs to be able to provide more credit to households and businesses at lower rates and on better terms.

Effective March 1, the reserves amount will fall from 12 percent to 9 percent. But Mr. Chung says it may not have that desired effect for small businesses as the banks will still have to consider the risk profiles of the entities in determining the rates at which it lends.

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CEO of Scotiabank and President of the Jamaica Bankers’ Association, David Noel says lending history over the last two years shows that far more personal loans will be paid back in comparison to small business loans. He says the government needs to get more of the economy into the formal financial system so they can benefit from lower rates.

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They were speaking this morning on Nationwide with Dennis Brooks and Patria-Kaye Aarons.