BSP raises peso rediscount rates

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) raised its rediscount rates on loans extended to local banks to finance the expansion needs of businesses and households after lifting its benchmark interest rates last week due to rising inflation.

The central bank raised the rediscount rates under the peso rediscount facility to 3.8125 percent from 3.5625 percent for loans with maturity of up to 90 days and to 3.875 percent from 3.625 percent for loans with maturity of up to 180 days.

The Monetary Board raised benchmark rates for the first time in more than three years by 25 basis points to 3.25 percent last week.

Rediscounting is a privilege of a qualified bank to obtain loans or advances from the BSP using the eligible papers of its borrowers as collaterals. It is a standing credit facility provided by the central bank to help banks liquefy their position by refinancing the loans they extend to their clients.

Over the past few years, the use of the central bank facility has been declining steadily as there is enough cash circulating in the economy.

Last year, the amount of rediscount loans plunged to P1.6 billion from a record P10.76 billion in 2016. In the first four months, rediscount loans amounted to P7.651 billion due to the sudden spike in demand for corporate loans amid the massive infrastructure build up by the Duterte administration.

Out of the total amount disbursed under the peso rediscount facility from January to April, the central bank said the bulk or 51.5 percent went to capital asset expenditures while 42.4 percent went to commercial credits.

On the other hand, a total of 3.17 percent went to permanent working capital, 2.85 percent to services, 0.07 percent to housing, and 0.03 percent to production credits.

The BSP in June last year adopted a unified rediscounting window for all types of banks as it terminated the sunset provision for small banks. It also shortened the maximum loan maturity to 180 days from 360 days.

Last May 10, the central bank raised its inflation forecast to 4.6 percent instead of 3.9 percent this year and to 3.4 instead of three percent for 2019 due to rising oil prices, higher transport fares in wages as well as the expected gain in domestic activity through faster gross domestic product (GDP) growth.

Inflation rose to a fresh five-year high of 4.5 percent in April from 4.3 percent in March due to rising oil prices as well as the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law. This brought the average inflation to 4.1 percent in the first four months, exceeding the two to four percent target set by the central bank.