Banks locally dropped lending rates by half a percent this week as the central banks worldwide lowered their rates.
This brings lending rate in Cayman down to 4.5 per cent, after the US Federal Reserve and other world banks slashed their interest rates in a coordinated move to a growing financial crisis from becoming a global economic meltdown.
Brett Hill, president and CEO of Cayman Fidelity bank said his bank had dropped its CI and US interest rates on Wednesday morning.
Mr. Hill said the only difference in Wednesday’s rate change and usual business was that normally there was a lag between changing the CI prime rate and the US dollar prime rate. ‘Today we did both,’ he said Wednesday.
Cayman National Bank dropped by half a per cent its US lending rates on Wednesday following the announcement by the Fed and other world central banks, and yesterday dropped its CI rates by half a per cent.
The Fed reduced its key rate in the US from 2 per cent to 1.5 per cent. The last reduction in the prime rate came in April when it was dropped by quarter of a percentage point.
Brian Esau, executive vice president of Cayman National, said the latest drop in lending interest rates was likely to mean a corresponding drop in deposit interest rates.
‘When interest rates drop, the deposit rates would usually drop as well, but we haven’t made any decision on that at this point in time.’
Economist Paul Byles said the lower rates would help businesses and individuals weather economic difficulties.
‘The nature of Cayman’s monetary system means that we have no control over interest rates as a small open economy with a currency board system, but we are obviously directly influenced by the interest rate changes in the US through our banking system.
‘So we should naturally see the benefits of lower rates when local banks make the adjustments to reflect the new US prime rates. One of the reasons for lowering interest rates globally is to support/boost general demand in the various economies, and we would expect a similar result locally as firms and individuals gain access to a slightly cheaper source of funds and either invest or spend within the domestic economy.’
Mr. Byles, owner and managing director of Focus Corporate Services and Consulting, added that the lower rate would help Cayman handle negative economic shocks it was likely to experience in the short to medium term.