Loan rates seen to ease further

Interest rates on housing, automobile, personal, business and other types of bank loans fell nearly 40 basis points since the start of the year, a development credited by the Bangko Sentral ng Pilipinas for the rise in demand for credit among consumers and businesses.

The BSP said on Friday that consumers and businesses could expect further declines in bank lending rates in the coming months even as the year-to-date drop in interest rates for all types of loans and across all maturities already averaged at 39.75 basis points.

“The central bank expects a further reduction in the market rates because a complete ‘pass through’ has not been achieved yet,” BSP Deputy Governor Diwa Guinigundo said.

“Pass through,” which measures the influence of changes in BSP policy rates on bank lending rates, is the proportion of the decline (or increase) in bank lending rates to the decline (or increase) in the central bank’s policy rates.

In January, March and July, the central bank cut its key policy rates by a total of 75 basis points. The aim was to influence a reduction in commercial lending rates so that consumers and businesses would be attracted to borrow and thus engage in more consumption and investment activities.

Guinigundo said that given the latest bank lending rates, the “pass through” stood at only 53 percent. He said that with the usual lag in the transmission of policy-rate cuts by the BSP, bank lending rates were seen to further drop over the short term.

The three rate reductions, each by 25 basis points, implemented by the BSP earlier this year were meant to spur the growth of the economy after it slowed down last year. Lower interest rates, which were seen to fuel demand for loans and boost purchasing activity, were seen facilitating a faster growth of the economy.

The key policy rates of the BSP currently stand at historic lows of 3.75 percent for overnight borrowing and 5.75 percent for overnight lending.

Documents from the BSP showed that the outstanding loans from universal and commercial banks rose 16 percent year on year to P2.98 trillion as of the end of July, fueled partly by the low-interest-rate environment.

In the latest policy rate-setting meeting by its Monetary Board last Thursday, however, the BSP decided to pause from the rate-reduction cycle.

The BSP said the stimulus created by the three rate reductions should be enough to help keep a robust growth for the economy.