Manila Times
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Monday, May 19, 2025
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BSP Rate Cuts Drive Improvement in Lending Rates in the Philippines
Nomura highlights accelerated pass-through of policy rate reductions to local lending rates, contrasting trends in the ASEAN region.
The transmission of key interest rate cuts to lending rates in the Association of Southeast Asian Nations (ASEAN) has been uneven; however, a recent report by Japanese investment bank Nomura indicates a significant improvement in the Philippines.
According to the report published on May 15, the pass-through to lending rates in the Philippines has enhanced markedly compared to the previous rate-cutting cycle, while demonstrating a weakening effect in Indonesia and Thailand.
Currently, approximately 80 percent of the 100-basis point cut in the policy rate has been reflected in lower lending rates in the Philippines, a substantial increase from just 30 percent in earlier cycles.
The Bangko Sentral ng Pilipinas (BSP) initiated a series of cuts to its key borrowing costs in August 2022, reducing the rate from 6.5 percent to 5.5 percent.
The latest reduction occurred on April 10, driven by global uncertainties and subdued inflation.
Forecasts among economic analysts suggest the BSP may implement an additional three quarter-point cuts by the end of the year, potentially lowering the rate to 4.75 percent.
The BSP's strategy in reducing policy rates is intended to encourage financial institutions to decrease their lending rates, thereby making loans more affordable and facilitating enhanced economic activity.
Nomura attributed the observed improvements in rate transmission to the BSP’s ongoing reforms and its timely decision to resume cuts to the reserve requirement ratio (RRR).
Earlier this year, the World Bank indicated that the BSP's adjustments to reserve requirements were likely to stimulate lending activity; these adjustments took effect at the end of March.
For commercial and universal banks (UKBs), the BSP reduced the reserve requirement ratio by 200 basis points to five percent from seven percent.
Digital banks saw their ratio decrease by 150 basis points, dropping to 2.5 percent from four percent, while thrift banks experienced a reduction of 100 basis points, resulting in a zero reserve requirement.
According to the report published on May 15, the pass-through to lending rates in the Philippines has enhanced markedly compared to the previous rate-cutting cycle, while demonstrating a weakening effect in Indonesia and Thailand.
Currently, approximately 80 percent of the 100-basis point cut in the policy rate has been reflected in lower lending rates in the Philippines, a substantial increase from just 30 percent in earlier cycles.
The Bangko Sentral ng Pilipinas (BSP) initiated a series of cuts to its key borrowing costs in August 2022, reducing the rate from 6.5 percent to 5.5 percent.
The latest reduction occurred on April 10, driven by global uncertainties and subdued inflation.
Forecasts among economic analysts suggest the BSP may implement an additional three quarter-point cuts by the end of the year, potentially lowering the rate to 4.75 percent.
The BSP's strategy in reducing policy rates is intended to encourage financial institutions to decrease their lending rates, thereby making loans more affordable and facilitating enhanced economic activity.
Nomura attributed the observed improvements in rate transmission to the BSP’s ongoing reforms and its timely decision to resume cuts to the reserve requirement ratio (RRR).
Earlier this year, the World Bank indicated that the BSP's adjustments to reserve requirements were likely to stimulate lending activity; these adjustments took effect at the end of March.
For commercial and universal banks (UKBs), the BSP reduced the reserve requirement ratio by 200 basis points to five percent from seven percent.
Digital banks saw their ratio decrease by 150 basis points, dropping to 2.5 percent from four percent, while thrift banks experienced a reduction of 100 basis points, resulting in a zero reserve requirement.
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