MANILA, Philippines–The cost of money in the country remains low, even as banks slowly hike interest rates from their record lows in response to the central bank’s decision to tighten monetary policy settings this year.
Data released by the Bangko Sentral ng Pilipinas (BSP) showed the interest rate hike “pass-through,” referring to the extent at which bank loan prices have been adjusted, stood at 61.2 percent at the end of October this year.
Average interest rates have thus risen by just over a quarter of a percentage point.
The average bank lending rate increased to 5.697 percent in October from 5.391 percent in July, the BSP said.
“The incomplete pass-through of policy rate adjustments to the bank lending rates could be attributed in part to ample liquidity in the financial system,” Tetangco told reporters at the weekend.
Earlier this year, the BSP hiked its benchmark policy rates from record lows by half a percentage point each.
The overnight borrowing and lending rates now stand at 4 and 6 percent. This was in response to rising consumer prices at the time.
Inflation peaked this year at 4.9 percent in July and August, but in December, consumer prices increases are seen averaging between 2.4 and 3.2 percent.
For the whole year, inflation is expected to average at 4.2 percent, faster than last year’s 3 percent. The BSP has an inflation target range of 3 to 5 percent.
Tetangco said in the period following “quantitative easing” measures by central banks in countries like the United States and Japan, “it has been observed that the pass-through of policy rate reductions is stronger relative to the pass-through of rate increases.”
This reflects the excess liquidity that was pushed into the global economy by the expansion of central banks’ balance sheets, as seen in the United States.
In the Philippines, excess money supply was also due to the exit of cash from the BSP’s special deposit accounts following a ban on individual investments from the facility. Money supply growth peaked at over 37 percent in February.