Firms brace for hike in borrowing rates

BSP Logo. photo

Businesses in the country are expected to temper their spending in the third quarter due to rising borrowing costs, according to a survey conducted by the Bangko Sentral ng Pilipinas.

During the three months to September, most Philippine banks are widely seen to raise interest rates charged on loans, the BSP said. The anticipated rise in interest rates will be the result of the central bank’s decision to hike its own rates to ease the buildup of inflationary pressures.


In a survey conducted from April to May, the BSP learned that the percentage of firms projecting an increase in interest rates during the period exceeded those that believed otherwise by 13.9 percentage points.

A total of 1,625 firms belonging to the Top 7000 corporations list of the Securities and Exchange Commission participated in the BSP survey.


The government reported that the rate of rise in consumer prices had been faster since the start of the year, compared to that seen during the same period in 2010. As a result, most companies now expect prices to continue to accelerate in the next quarter.

This projection has been reinforced by reports of rising oil prices in the global market.

Higher prices of oil in the international market significantly affects the prices of consumer goods and services in the Philippines because the country sources bulk of its oil requirements abroad.

“The increase in costs of fuel and other commodities in the global market, and the strong performance of the domestic economy, contributed to higher inflationary expectations of respondents,” the BSP said in a report detailing the survey.

Already, the BSP has raised its key policy rates twice this year.

The central bank’s monetary policy influences banks’ commercial interest rates.

At present, the central bank’s overnight borrowing and lending rates stand at 4.5 and 6.5 percent, respectively.


The hike in key policy rates will lead most banks to raise their commercial lending and deposit rates as well. As a result, bank borrowings are expected to decline, while the amount of savings will rise, in the next few months.

This development will also temper demand for goods and services as well as inflation.

Despite the rate hikes implemented earlier this year, most businesses still expect the BSP to tighten its monetary policy further this year due to the buildup of inflationary pressures.

Latest report from the National Statistics Office showed that inflation stood at 4.5 percent in April, and 4.2 percent in the first four months of the year.

Last year, inflation averaged at a more benign rate of 3.8 percent.

Still, the BSP believes that overall sentiment will remain generally positive as the economy will grow, albeit at a slower pace, this year.

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TAGS: Bangko Sentral ng Pilipinas, Banking, Borrowing Rates, Inflation, Interest Rates, National Statistics Office, oil prices, Securities and Exchange Commission
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