The BSP has repeatedly said that lowering interest rates would become relevant only when the average national inflation rate has gone down to four to five percent, but easing of monetary policies could come earlier.
BSP Governor Amando M. Tetangco Jr. told reporters that easing monetary policy, in particular lowering policy rates, would be considered if the inflation rate actually starts going down.
"If the trend towards the target is well established and satisfactory, then we can start considering this," Tetangco said.
His comment suggested that easing of monetary rates could actually come earlier and before the inflation rate hits four to five percent.
The BSP has been parrying speculations that it would raise its policy rates if the US Federal Reserve raises its rates again but now, banks are also calling for lower rates to encourage bank lending.
However, monetary officials said that lowering the BSP’s policy rates would not solve the anemic lending activity in the banking sector.
Although lowering policy rates would have the effect of lowering borrowing costs, an MB official who refused to be named said this would not address the underlying reasons for low credit demand.
The banking sector has been risk-averse since 1997 when the industry suffered seriously from collapsing property companies with huge bank loans. The crisis led to spiraling bad loans that the industry was still saddled with even now.
Tetangco, on the other hand, said the growth drivers in the economy were not lending-intensive, specifically export industries and agriculture.
"That’s why we are not seeing a corresponding growth in bank lending despite the economic growth," Tetangco said.
Moreover, Tetangco said the industries that do need funds use internally-generated funds that they use for operations.
"We still have excess capacity so there is no significant expansion happening," he said. "Most companies need funds for their operating capital and not so much for capacity expansion."
Meanwhile, Tetangco said banks are still saddled with bad loans in their portfolios and this has persistently kept the institutions cautious in lending to corporate borrowers.
"Until they clear that up to a more manageable level, bank lending will be risk-averse," he said.