BSP lifts rediscount rates anew

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) lifted anew the rediscount rates on loans extended to local banks to finance the expansion needs of businesses and households after delivering its strongest monetary policy action in 10 years.

In a statement, the BSP said it raised the rediscount rates for loans under the peso rediscount facility to 4.5625 percent from 4.0625 percent for loans with maturity of up to 90 days and to 4.6250 percent from 4.1250 percent for loans with maturity of up to 180 days.

The BSP’s Monetary Board on Thursday lifted rates for the third consecutive meeting, this time by 50 basis points, the biggest since a similar hike was adopted in July 2008, to rein inflation expectations and prevent sustained supply-side price pressures from driving further second-round effects.

This brought the overnight reverse repurchase rate to four percent, the overnight deposit rate to 3.5 percent, and the overnight lending rate to 4.5 percent.

The central bank delivered back-to-back rate hikes as inflation continued to accelerate. It raised interest rates by 25 basis points for the first time in more than three years last May 10, followed by another 25 basis points last June 20.

Inflation kicked up to a fresh five-year high of 5.7 percent in July from 5.6 percent in June, bringing the average to 4.5 percent in the first seven months and exceeding the BSP’s target of two to four percent.

Rediscounting is a privilege of a qualified bank to obtain loans or advances from the BSP using the eligible papers of its borrowers as collateral. 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.

Rediscount loans reached P10.6 billion from January to July this year due to higher demand for corporate loans amid the massive infrastructure buildup by the government.

Out of the total amount disbursed under the peso rediscount facility,  bulk or 51.71 percent went to commercial credits particularly importers (29.9 percent), trading (21,74 percent), and exports (0.08 percent).