The Bangko Sentral ng Pilipinas said it wanted banks to fully reflect the one percentage-point cut in key policy rates done so far this year on commercial lending rates as a further boost in domestic spending could come in handy in case global economic woes worsen.
BSP Governor Amando Tetangco Jr. said monetary authorities were keen on seeing the cost of credit to fall further even as interest rates were now at historic lows.
“We have done four rate cuts so far this year. We want to see the full impact of the rate cuts on the economy,” Tetangco told reporters on Monday.
Last Thursday, the BSP cut its key policy rates by 25 basis points, bringing the overnight borrowing and lending rates of the central bank to new record lows of 3.5 percent and 5.5 percent, respectively.
Prior to Thursday, the BSP reduced its rates by 25 basis points in January, another 25 points in March and 25 basis points in July.
Key policy rates influence commercial interest rates. With the rate reductions totaling one percentage point so far this year, the BSP wanted bank lending rates to decline so that demand for loans would also increase.
But the BSP reported last week that since the start of the year, the “pass-through rate” was still just at 80 percent. “Pass-through,” which measures the influence of changes in the BSP policy rates to 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 key policy rates. The BSP said that from January to the middle of October, bank lending rates fell by an average 60 basis points compared with the 75-basis-point total cut in the key policy rates of the BSP during the period.
Tetangco was quoted on Monday as saying that the BSP still had room to reduce key policy rates some more following the reduction done last Thursday. The central bank chief said on Monday that such flexibility to lower rates would be used depending on factors like the movement of domestic prices, developments in the global economy and the reflection of the four policy rate cuts in the commercial lending rates charged by banks.