BSP says banks pass on rate cuts

CITING lower real estate and auto loan rates, the Bangko Sentral ng Pilipinas (BSP) said banks have begun passing on to their lending business the monetary authorities’ cut in key interest rates.

“On the impact of policy rate easing by BSP, latest data show banks have passed on about 40 percent of the cut in policy rates in terms of lower bank lending,” BSP Governor Amando Tetangco Jr. said.

The BSP has reduced its policy rates by 175 basis points since December, bringing the overnight borrowing and lending rates to 4.25 percent and 6.25 percent, respectively.

Tetangco said banks could not pass on 100 percent of the rate cut, as the financial institutions are cautious due to the global financial crisis.

“This has been the experience not only of the Philippines but also in other countries. I have spoken with my counterparts with the other countries and they have confirmed that from their own experience, there is a less than 100 percent pass-through,” the governor said. 

The BSP said local banks offer mortgage rates of 8.75 percent to 9.75 percent for the first year, 10.25 percent for the five-year tenor, and 10.75 percent to 11 percent for the 10-year.

“That is also the reason why we have tolerated a higher than normal growth in M3 [domestic liquidity] relative to economic growth and inflation,” Tetangco said.

Outstanding loans of commercial banks including placements with the BSP grew by 13.4 percent in April, slower than the 18.9 percent registered in March.

Domestic liquidity or M3 rose by 13.7 percent year-on-year, a slight deceleration from the 15.6 percent in March.

The BSP earlier said inflation is unlikely to accelerate despite increasing international oil prices due to the domestic economy’s slow recovery.

It forecast inflation to reach 3.4 percent this year, down from 9.3 percent last year.

Development Bank of Singapore had said the ongoing rise in oil and commodity prices could limit the scope for further rate cuts in the Philippines.

The Singaporean lender however said the BSP is likely to cut its policy rates by 25 basis points during the Monetary Board’s next meeting on July 9. –Maricel E. Burgonio, Senior Reporter, Manila Times