Taking out a loan? The sooner, the better

Those who want to borrow money from banks, be they individual consumers or corporate groups, might be better off doing it sooner than later before interest rates increase further, as the Bangko Sentral ng Pilipinas (BSP) had signaled another round of hikes in August.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., told the Inquirer that while the cost of money was relatively low compared to the rate of increase in prices of goods and services, the difference was narrowing.

“Prospective borrowers may already hedge or front load their borrowing requirements before short-term interest rates increase further,” Ricafort said.

Still, the economist pointed out that the BSP’s key policy rate—which influences the direction of interest rates carried by bank loans—was currently at 3.25 percent.

Ricafort said this was still below the 4-percent level that was prevailing at the end of 2019 or shortly before the pandemic.

The present policy rate level is even further lower compared with the 4.75 percent that prevailed in late 2018 and early 2019 when inflation in the Philippines was similarly high.

Ricafort said that, then as now, average inflation was a little over 5 percent.

“Thus, short-term interest rates are still way below inflation, which is at a near four-year high of 6.1 percent in June 2022,” he said.

A possible additional increase in the BSP policy rate of 0.25 percentage point (ppt) to 0.5 ppt in August, as BSP Governor Felipe Medalla hinted at on Tuesday, could further lead to higher borrowing costs for consumers and households as well as businesses, government entities, and other institutions.

Ricafort believes that any additional increase in the BSP policy rates would be correlated to further rate hikes of the US central bank as well as how the peso would behave at the foreign exchange market.

—RONNEL W. DOMINGO INQ