May 2017 Financial News

Central Bank adjusts MMRR weighting

May 24, 2017

After a review lasting more than a year, the Central Bank has decided to make a major change to its Mortgage Market Reference Rate (MMRR), which banks have utilised as the guideline for adjusting their variable mortgage rates.

The Central Bank announced in a news release on Monday that it was adjusting the weighting structure of the MMRR, which now comprises a cost of funds element (at 40 per cent) and a representative interest rate element (at 60 per cent).

This 40:60 weighting has been changed to 50:50, in a move the Central Bank says would help to lower volatility in the MMRR moving forward.

Information on the cost of funds is derived from the weighted average costs of bank liabilities and other funding liabilities and policy and deposit insurance costs, while the 15-year Treasury bond yield is used as the representative interest rate.

The MMRR has been maintained at a rate of 3.00 per cent since March 2016 when the latest review commenced. According to the Central Bank, based on available data to March 2017, the 50:50 formulation would have resulted in the MMRR remaining at 3.00 per cent, while the 40:60 formulation would have resulted in an MMRR of 3.50 per cent.

The Bank said: “Given that the MMRR is not a policy rate of the Central Bank and alignment of mortgages to the MMRR is not mandatory, individual commercial banks would explicitly indicate whether they would continue to align their variable mortgage rates to the MMRR.

“The list of banks that utilise the MMRR in determining their variable interest rates will be published on the Central Bank’s website. In the interest of public disclosure and transparency, other commercial banks not aligned to the MMRR will need to declare to their customers and to the Central Bank the reference rates to which their mortgages are aligned.”

The Central Bank said T&T’s commercial banks have committed to adjusting the wording of their mortgage contracts, advertisements and published statements to further clarify, where necessary, the basis on which mortgage rates are to be adjusted. All commercial banks will remain bound by the disclosure requirements in the Guideline.

The Central Bank will resume publication of the MMRR on June 1, 2017, taking into account the changes to the benchmark.

The Central Bank, in consultation with the Bankers Association of Trinidad and Tobago (BATT), introduced the “Residential Real Estate Mortgage Market Guideline” in September 2011.

The main aim of the Guideline is to improve transparency in the local residential mortgage market by requesting that commercial banks disclose to their customers information about how banks set mortgage rates and the conditions under which rates are adjusted over the term of their mortgage. The Guideline also established the MMRR.

Source:
Trinidad Guardian
Wednesday May 24, 2017

http://www.guardian.co.tt/business/2017-05-24/central-bank-adjusts-mmrr-weighting