Real lending rate in RP eases in 2009

MANILA, Philippines – The real lending rate in the Philippines continued to slide last year enabling the country to improve its ranking in Asia in terms of highest real lending rate, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The BSP said the Philippines emerged as the seventh country in Asia with the highest real lending rate with 3.6 percent as of end-December while Indonesia emerged the number one country in terms of highest real lending rate with 10.2 percent.

Real lending rate is measured as the difference between the average bank lending rate and inflation.

“The real lending rate of the Philippines ranked seventh highest (from being the third highest in September 2009) in a sample of 10 Asian countries, while indonesia at 10.2 percent registered the highest real lending rate,” the BSP stated in its latest inflation report.

The central bank, however, explained that the country’s real lending rate continued to ease due to higher inflation.

It pointed out that the end-December level of real lending rate was lower than the end-September level of 7.3 percent.

“The uptrend in inflation led the real lending rate – measured as the difference between the average bank lending rate and inflation – to ease to 3.6 percent in December last year from 7.3 percent in September 2009,” the BSP added.

The benign inflation enabled the country’s monetary authorities to pursue its easing cycle last year wherein it slashed its key policy rates by 200 basis points between December of 2008 and July of 2009. This brought the overnight borrowing rate to a record low of four percent and the overnight lending rate to six percent.

Inflation last year eased to 3.2 percent last year from 9.3 percent in 2008 due to easing commodity prices particularly rice as well as lower oil prices. The actual inflation was within the BSP target of between 2.5 percent and 4.5 percent.

The BSP has set an inflation target of between 3.5 percent and 5.5 percent for 2010. However, it expects inflation to average 4.7 percent this year.

Monetary authorities started its unwinding stance last Jan. 28 when it raised the rediscount rate to four percent putting it at par with the overnight borrowing rates also of four percent. However, it kept its policy rates at its current record low levels.

BSP officials made it clear that monetary authorities would first focus on liquidity enhancing measures before adjusting its key policy rates as part of the gradual implementation of an exit strategy.

Economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s domestic output as measured by the gross domestic product (GDP) expanding between 2.6 percent and 3.6 percent this year from 0.9 percent last year. –Lawrence Agcaoili (The Philippine Star)