Real lending rate in RP continues to slide in first quarter

MANILA, Philippines – The real lending rate in the Philippines continued to slide in the first quarter of the year due to the steady decline in nominal bank lending rates, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The central bank said the Philippines emerged as the fifth country in Asia with the highest real lending rate of 3.2 percent as of end-March. The country’s previous rank was sixth with a rate of 3.6 percent as of end-December.

The BSP said Indonesia has the highest real lending rate at 9.8 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 fifth highest (from sixth highest in December 2009) in a sample of 10 Asian countries,” the BSP said, adding that the country’s real lending rate continued to ease due to higher inflation.

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.

This year, monetary authorites have set an inflation target of between 3.5 percent and 5.5 percent. Inflation averaged 4.3 percent in the first four months of the year from 6.4 percent in the same period last year.

However, the BSP expects inflation to hit a high of six percent either in June or July due to a possible wage increase, fare hike, and rising pump prices of petroleum products.

During their latest meeting last April 22, the central bank’s Monetary Board raised its inflation forecast to 5.1 percent instead of 4.64 percent this year and 3.7 percent instead of 3.45 percent next year assuming that there would be a wage increase and fare hike in May and at the same time the rising trend in oil prices would continue.

Earlier, BSP Governor Amando M. Tetangco Jr. said the central bank would likely keep its key policy rates at record lows in the first half of the year on the back of a benign inflation outlook. It has kept its overnight borrowing rate at a record low of four percent and its overnight lending rate at six percent for seven consecutive policy-setting meetings since July last year.

The Monetary Board slashed its key policy rates by 200 basis points between December of 2008 and July of 2009 and at the same time introduced several liquidity enhancing measures to cushion the impact of the global economic meltdown.

Last April 22, the central bank continued the unwinding of crisis intervention measures that were adopted since November of 2008 by further reducing the budget for peso rediscounting facility to to pre-crisis level of P20 billion from P40 billion starting May 3.

Last March 11, monetary authorities reduced the peso rediscounting budget to P40 billion from P60 billion, restored the loan value of all eligible rediscounting papers to 80 percent from 90 percent of the borrowing bank’s credit instrument, and restored the non-performing loan (NPL) ratio requirement of two percentage points from 10 percentage points.

Last Jan. 28, the BSP raised the rate on a short-term lending facility to four percent from 3.5 percent marking the start of an exit strategy with the tweaking of exiting liquidity enhancing measures. –Lawrence Agcaoili (The Philippine Star)