By James McKeigue

Copyright caymancompass

The US Federal Reserve’s 17 Sept. decision to cut the prime interest rate by 0.25 percentage points to between 4% and 4.25% is already impacting borrowing rates in the Cayman Islands.

Butterfield was the first Caymanian bank to respond to the Fed’s decision. The bank announced that interest on variable mortgage, personal and corporate loans would drop by 0.25% to 7.25%.

“Butterfield has cut its prime rate for US and CI dollar lending for residential mortgages, consumer loans and corporate loans,” said the bank’s marketing and communications manager, Rory Mann.

“The US and CI dollar prime rates for residential mortgages, consumer loans and corporate loans will decrease by 0.25% to 7.25% effective September 19, 2025.”

Butterfield may have been the first, but the other five retail banks in the Cayman Islands will follow suit, said Amanda Bodden, president of the Cayman Islands Bankers Association. “I expect all of the retail banks will adjust their prime rate by the same 0.25% reduction announced this week. The timing of the reduction will be decided by each individual bank [and] borrowers should look out for communications from their lending bank directly.”

On 19 Sept., CIBC also officially announced it was also reducing its US$ and CI$ lending rates to 7.25% effective the same day.

The US Federal Rate cut translates more directly onto Caymanian mortgages than in other jurisdictions. One of the quirks of the Islands is that most mortgages are directly priced off the US prime rate. That is unlike in the US or UK where mortgages are linked to market borrowing conditions, rather than the benchmark rate set by the central bank.

“The retail banks adjust their prime lending rate in step with the US Federal Reserve,” said Bodden. “This is a rate setting convention that has worked well for many decades in Cayman.”

That matters because with the Fed indicating that there will be more cuts to the US prime rate this year, Caymanians can expect borrowing costs to fall further. “The Fed signalled that we will see another 0.5% of cuts before December,” said Simon Cawdery, director at HLX Management.

But while it is easy to calculate how further US Fed cuts would affect borrowing rates on the Cayman Islands, the impact on the economy is harder to quantify.

“If you look at this cut in isolation then it’s a relatively small adjustment because it’s 0.25% against a mortgage rate that was standing at 7.5%,” said Cawdery. “However, if we see further cuts of 0.5% then in total you are taking 0.75% of a mortgage rate that was 7.5% – and 10% off your mortgage is a big adjustment.”

Bodden agrees. “A reduction of 0.75% within a quarter is material; existing and new borrowers would benefit from lower borrowing costs and higher borrowing capacity as a result.”

After a period of relatively high US rates, as the Fed drops the prime rates, Bodden expects Caymanians to take advantage of lower local borrowing costs.

“The higher rate cycle has certainly had an impact on demand for local lending. With lending rates trending downward I expect borrowing capacity will increase and there will be more activity in the market.”

For Caymanians, lower borrowing costs offer a welcome respite at a time of high living costs. “At the moment, the Caymanian consumer is a bit beaten up by consumer price inflation,” said Cawdery, “so many might choose to keep the savings rather than spend them.”