Banks start to adjust lending rates

MANILA, Philippines - Banks have started to adjust their lending rates following the Bangko Sentral ng Pilipinas’ decision to raise key policy rates last month.

BSP Governor Amando M. Tetangco Jr. said the hike in the overnight borrowing and overnight lending rates announced last July 31 has started creeping into the domestic banks’ interest rates. 

“We are seeing some signs that banks are beginning to adjust rates. For instance, you may have noticed that the number of ads put out for very aggressive low interest rates on consumer loans have declined,” Tetangco said.

 “But how fast banks would make adjustments is really a business decision that would depend on bank to bank, ” Tetangco added.

Monetary authorities during their most recent policy meeting increased key rates to anchor inflation expectations as the target range for 2015 came at risk of being breached. 

The central bank cited pressures coming from the soaring food prices, the volatility in international oil prices, and the pending adjustments in power rates and transportation fares.

At the same time, the preemptive move was also done ahead of expected monetary policy normalization in advanced economies.

“The goal of our policy actions really is to keep banks alert and mindful of the risks that global conditions could become tighter sooner,” Tetangco said. 

“And therefore, that it is best for them to make adjustments gradually to avoid chunky moves that could be more destabilizing for them than if they would make smaller, but earlier moves,” he said.

The central bank has increased the reserve requirement ratios and the interest rate on the Special Deposit Account to rein in liquidity and better ensure inflation would remain within the target range.

Inflation jumped to a 33-month high of 4.9 percent in July, driven by rising food prices and increases in utility rates and transportation fares.

This brought the seven-month average to 4.3 percent, about the same as the BSP’s full-year forecast average of 4.33 percent. The level is still within the three to five percent target for the year but above the midpoint of the band.

For next year, the central bank has forecast inflation to average 3.72 percent, near the upper end of the two to four percent target range.