BSP hikes banks’ discount loans

THE BANGKO Sentral ng Pilipinas has increased the interest rate it charges banks that avail of discount loans. The new rate took effect on May 9.

The interest rate on discount loans increased by 25 basis points, or from 4.25 percent to 4.5 percent on all maturities, the BSP said.

The increase in the discount rate came about after the BSP raised its overnight borrowing rate by 25 basis points, or from 4.25 to 4.50 percent.

The BSP has been pegging the discount rate to the interest rate it charges banks for overnight deposits.

The BSP offers discount loans to help banks in their lending operations.

The discount loans are backed by a borrowing bank’s receivables, which serve as collateral.

The amount of loans granted by the BSP is a discounted value of a bank’s collateral.

Last week, the BSP raised its overnight borrowing rate—the key policy rate that influences commercial interest rates—by 25 basis points, from 4.25 to 4.5 percent.

It was the second time the BSP raised the overnight borrowing rate this year. The first was in March, when the BSP implemented a similar 25-basis-point rate hike.

The rate increase was meant to temper the rate of rise in consumer prices, which has been accelerating on the back of rising global oil prices and growing consumer demand.

Higher interest rates are expected to ease demand for bank loans, thus slowing down credit-backed consumption and demand.

Higher rates are likewise meant to encourage bank savings, tempering the growth in cash that may be used for consumption.

In April, inflation stood at 4.5 percent, the fastest in 12 months.

As a result, inflation in the first four months averaged at 4.2 percent, still within the full-year ceiling of 3 to 5 percent but already faster than that of last year.

Monetary officials said that without the interest rate hikes implemented this year, inflation for the full year would have breached the 5-percent target ceiling.

Fuel prices in the world market has been rising due to the political tension in some oil-producing countries in North Africa and the Middle East.

Developments overseas have adversely affected countries that depend on imported oil.

The Philippines sources over 90 percent of its fuel requirements abroad, although it has other sources of energy.

Also, rising demand due to the economy’s expansion has been putting pressure on prices.

Consumer demand is expected to rise some more because of the increase in workers’ compensation.

According to the BSP, higher interest rates may ease inflation, but it will not substantially dampen the economy’s growth.