Good time to borrow as BSP rates hit new lows

Judith Balea
The central bank cut its key interest rates for the 4th time this year, bringing them to new record lows, to protect the economy from global headwinds

RECORD LOW RATES. Monetary officials reduce interest rates anew to help sustain economic growth this year

MANILA, Philippines (2nd UPDATE) – If you want to get a loan for a house, a car or something else, now is a good time.

The Bangko Sentral ng Pilipinas (BSP) cut its key interest rates for the 4th time this year, bringing them to new record lows, to encourage consumers to spend and businesses to invest.

At a policy meeting on Thursday, October 25, the Monetary Board of BSP slashed overnight borrowing and lending rates, which are benchmarks for commercial lending, by 25 basis points to 3.5% and 5.5%, respectively.

The latest rate cut follows reductions of 25 basis points each in January, March and July.

It is meant to boost economic activity and protect the Philippines from global headwinds, the central bank said in a statement.

The bank explained that while Philippine growth remains strong, “world economic conditions are likely to remain tepid,” dampening market confidence.

“Additional policy support could help ward off the risks associated with weaker external demand by encouraging investment and consumption,” it said.

The Philippine economy grew 6.3% in the first quarter and 5.9% in the second, defying the trend in the region, despite slowing demand from trading partners.

Multilateral lenders such as the World Bank are optimistic about the country’s sustained growth this year, but they warned its major export markets are likely to “remain anemic.” The eurozone is expected to suffer contraction in gross domestic product growth, while a further slowdown in China is seen.

Benign inflation

Boosting growth was the major reason for the rate cut; benign inflation gave room for it, the BSP said.

Inflation is one of the main factors the BSP looks at when adjusting its interest rates, which influence the rates that local banks charge on their loans.

Low bank rates boost demand for loans, which, in turn, encourage households and businesses to spend for goods and investments. Increased consumption, however, drives consumer prices up.

Inflation eased to 3.6% in September from the previous month, bringing the 9-month average to 3.2%, at the low end of the BSP’s 3% to 5% 2012 target.

“Latest baseline forecasts indicate that the future inflation path remains within target for 2012 up to 2014, with inflation expectations aligned to the inflation target within the policy horizon,” the BSP noted.

Nonetheless, it said it continues to monitor potential upside pressures on inflation, including pending power rate adjustments and higher global prices for some grains.

It said though that subdued global demand could moderate these pressures and temper the overall inflation outlook. –

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