Phl lending rate up to 2.5% in Q2, 4th highest in Asia

MANILA, Philippines – Real lending rate in the Philippines climbed to 2.5 percent in the second quarter of the year from 2.1 percent in the first quarter due to the continued growth of the average nominal bank lending and inflation rates, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The BSP said the average nominal bank lending rate increased to 7.1 percent as of end-June from 6.4 percent as of end-March while inflation kicked up to 26-month high of 4.6 percent in June from 4.3 percent in March.

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

“The rise in both the average nominal bank lending rate and the inflation rate resulted in the rise in the real lending rate,” the BSP reported.

As such, the BSP pointed out that the ranking of the Philippines in 10 Asian countries in terms of the level of real lending rate went up to fourth highest in the second quarter of the year from fifth highest in the first quarter.

The central bank said Indonesia emerged as the country with the highest real lending rate in Asia with 6.7 percent.

Latest data from the National Statistics Office (NSO) showed that inflation remained steady at 4.6 percent in July as monetary authorities believed that inflationary pressures have moderated amid volatile commodity prices in the world market and strong capital inflows into emerging market economies including the Philippines.

The National Statistics Office (NSO) reported yesterday that last month’s inflation was unchanged from the June average of 4.6 percent using the 2000-based Consumer Price Index (CPI) series. This brought average consumer prices to 4.3 percent in the first seven months of the year from 4.2 percent in the same period last year.

The BSP has set an inflation target of three percent to five percent between 2011 and 2014. Based on its latest forecast, the BSP sees inflation averaging 4.7 percent this year and 3.74 percent next year.

The BSP decided to keep interest rates unchanged anew last July 28 as it has so far raised policy rates by 50 basis points to keep inflation expectations well anchored. The central bank 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 series of rate hikes brought the overnight borrowing rate to 4.50 percent and the overnight lending rate to 6.50 percent.

Instead of raising policy rates, the BSP decided to raise the reserve requirement for banks last June 16 and July 28 to 21 percent from 19 percent last June 16 to counter any additional inflationary pressures from excess liquidity. The 200 basis point increase in the reserve ratio requirement would siphon at least P70 billion worth of liquidity from the financial system. –Lawrence Agcaoili (The Philippine Star)