Banks’ real lending rate eases to 2%

MANILA, Philippines – Bank’s real lending rate eased to two percent in the third quarter of the year from 2.5 percent in the second quarter due to the reduction in the average nominal lending rate while inflation remained steady, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

In its inflation report for the third quarter of 2011, the BSP said the average nominal bank lending rate declined to 6.6 percent in end-September from 7.1 percent as of end-June while inflation remained steady at 4.6 percent in September (based on 2000 prices) from 4.6 percent in June.

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

As such, the BSP pointed out that the ranking of the Philippines remained in fourth place among 10 Asian countries in terms of the level of real lending rate.

The central bank said Indonesia emerged as the country with the highest real lending rate in Asia with 7.8 percent in the third quarter of the year from 6.7 percent in the second quarter.

Latest data from the National Statistics Office (NSO) showed inflation kicked up to 5.3 percent in October from 4.6 percent in September and breached the higher end of the three to five percent target set by the BSP due to higher food and utility prices brought about by the supply disruptions caused by the weather disturbances.

This was the highest level since April 2009 when inflation averaged 6.4 percent. Consumer prices last month brought the average inflation to 4.5 percent from January to October, higher than the four percent average in the same period last year.

Last Oct. 20, the BSP’s Monetary Board retained the central bank’s inflation forecast of 4.46 percent for this year but lowered the forecasts for 2012 to 3.05 percent from 3.4 percent and for 2013 to three percent from 3.23 percent due to the expected slowdown in global economic growth and the lower forecasts for petroleum prices to $94.5 per barrel from $104.75 per barrel for 2012 and to $92.82 per barrel instead of $102 per barrel for 2013.

During the meeting, the BSP has kept interest rates steady for the fourth consecutive policy rate-setting meeting since May amid the benign inflation outlook as well as the fragile global and domestic economic environment. The overnight borrowing rate is pegged at 4.50 percent while the overnight lending rate is at 6.50 percent.

The BSP raised interest rates by 25 basis points last March 24 and by another 25 basis points last May 5 as a preemptive move to keep inflation expectations well anchored amid the escalating price of oil in the world market.

The policy rate-setting body, however, kept interest rates steady last June 16 and July 28 but raised the reserve requirement ratio for banks by a cumulative 200 basis points to 21 percent from 19 percent to siphon off P70 billion from the financial system and curb additional inflationary pressures arising from excess liquidity brought about by strong inflow of foreign capital.

Based on 2006 prices, the NSO said inflation averaged 5.2 percent in October from 4.8 percent in September, bringing the average inflation to 4.8 pecent in the first 10 months of the year from 3.8 percent last year. Inflation last month was higher compared to a year ago level of 3.3 percent. –Lawrence Agcaoili (The Philippine Star)