Delaying interest rate hikes on mortgages and loans for 30 days over the next year will help Caymanian borrowers, but banks can do even more, Premier Wayne Panton has said.
“I hope and expect that they will engage in further dialogue with the government,” he wrote in a statement issued on Wednesday, 2 Aug.
The US Federal Reserve on Wednesday, 26 July, increased the interest rate for borrowing by 0.25% to 5.5% – the highest it has been in 22 years.
The latest increase marks the 11th time that interest rates have gone up since the start of 2022.
The US prime rate, which local banks adopt as the Cayman Islands’ lending rate, is 3% above the Federal Reserve Rate – so is now at 8.5%.
Until recently, banks immediately passed increases on to their customers, with payments on mortgages and loans rising significantly over the past 14 months.
But from now until June 2024, Cayman banks have promised to implement a 30-day notice period before passing on any rate increase.
The premier announced the agreement during the Chamber of Commerce parliamentary luncheon in June following year-long negotiations.
At the banks’ discretion
The situation has been difficult, he said, especially when coupled with the high cost of living, including increased prices for food, utilities, gas, accommodation and other necessities.
Panton stressed that the decision to increase local interest rates and the timing “does lie within the local retail banks’ discretion”.
“While local banks have historically immediately increased interest rates in tandem with rate hikes by the Fed, there is no reason why this must continue to be the case,” he said.
The premier said he initially requested a 60-day notice period and consideration be given to ending the practice of raising local rates to match Fed rate hikes.
He added, “I hope and expect that they will engage in further dialogue with the government to determine how to further alleviate or potentially avoid the impact of future rate increases by the Fed.
“We must guard against Caymanian homeowners potentially losing their homes due to the inability to meet increased interest charges, and local business struggling to keep up with their financing payments in addition to other high-level expenses.”
Butterfield Bank (Cayman) and Cayman National will increase their prime rate from 8.25% to 8.5% on 25 Aug., while RBC Cayman will do it on 28 Aug.
‘Some small hope’
Opposition leader Roy McTaggart said he wrote a letter to the premier three weeks ago detailing concerns on the cost-of-living crisis and said to date he has not had a response.
However, Panton’s statement gave him “some small hope” that he had been listening to his party’s concerns.
McTaggart said he was also pleased that the banks agreed to delay interest rate rises by 30 days, but said this will not prevent further drastic increases in loan payments.
“It is imperative that more is done,” he said, and suggested banks proactively consider suitable programmes to avoid further increases in loan payments.
“This may mean extending the loan payment period, or other practical programmes, to keep loan payments affordable for borrowers – particularly mortgage holders,” he said.
“The point is to ensure that we do not see families getting further into financial stress and losing their property over the next year or two.”
He urged the premier to move forward with recommendations in his letter “as a matter of urgency” and asked for confirmation that conversations with local banks are continuing.
McTaggart also asked for more firm action.
“Premier Panton needs to call the banks to the table to discuss the specific recommendations I have given him, along with any others he has in mind,” he said.
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