Time to borrow? BSP cuts rates to historic low of 3.75%

Rappler.com
Low interest rates are meant to spur economic growth by encouraging businesses to borrow for their expansion needs, and for citizens to invest in capital assets, including cars and real estate properties.

LOWER RATES. Monetary officials reduced interest rates for the first time since July 2009

MANILA, Philippines – The policy making body of the Bangko Sentral ng Pilipinas (BSP) cut interest rates by another 25 basis points to a historic low of 3.75% for overnight borrowing.

The rate cut is seen as a move to help spur local investment and expansion activities to help prop the Philippine economy further amid the continuing uncertainties in Europe, US and the Middle East.

This is only the 3rd time the monetary officials cut interest rates since 2009. It slashed 25 basis points last March 1 and January 19.

“The Monetary Board’s decision is based on its assessment that price pressures have been receding with risks to the inflation outlook slightly skewed to the downside,” the BSP said in a statement on Thursday, July 26.  

“Latest baseline forecasts indicate that inflation is likely to settle within the lower half of the 3% to 5% target for 2012 and 2013, as pressures on global community prices are seen to continue to abate amid weaker global growth prospects,” it added.

The monetary officials’ decision was not exactly a surprise after BSP governor Amado Tetangco hinted that the continuing low inflation provides room for a rate cut.

Policy makers watch inflation since a low interest rates tend to make money easier and borrowing cheaper, thus there are more money in an economy. As a textbook altruism, people tend to spend more when an economy is awash with money, in effect driving up the cost of goods and services.

Low interest rates are meant to spur economic growth by encouraging businesses to borrow for their expansion needs, and for citizens to invest in capital assets, including cars and real estate properties. – Rappler.com


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