MANILA, Philippines – Banks continue to pass on to their borrowers the cumulative 200 basis point rate cut implemented by monetary authorities since December last year to boost the economy and check inflation, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.
The BSP noted an 83-percent pass- through by banks, meaning that their lending rates had already fallen by about 166 basis points after the BSP slashed its key policy rates by 200 basis points since December last year.
“The cumulative 200-basis point policy rate cut of the BSP appeared to have been passed on by banks to their borrowers,” the central bank said.
Pass through is defined as the ratio between the change in the lending rate and the change in the policy rate by central banks since the beginning of the easing cycle in the Asia Pacific region.
The BSP’s Monetary Board has slashed key policy rates by 200 basis points from December 2008 to July this year as part of easing measures to boost the country’s economy.
This brought the overnight borrowing rate to a record low of four percent from six percent and the overnight lending rate to six percent from eight percent.
The International Monetary Fund (IMF) said the Philippines is the third fastest country in Asia in terms of passing on to borrowers lower interest rates brought about by the easing cycle of central banks to boost the global economy.
Data showed that the estimated interest rate pass-through in the Philippines was 2.2 months, next to Indonesia’s 1.2 months and India’s 1.2 months. Japan has an interest rate pass-through of 2.3 months, Thailand with five, Australia with 7.5, Malaysia with eight, Korea with 8.3, and New Zealand with 11.5 months.
“The pass-through mechanism appears to be faster and more complete in Japan and the Philippines, whereas it takes about eight months to reach full pass-through in Korea and Malaysia,” IMF said.
IMF said central banks in Asia aggressively eased monetary policy as the global crisis unfolded by cutting interest rates to historically low levels, reduced reserve requirements, and introduced unprecedented measures to provide liquidity and encourage lending.
“Since September 2008, Asian countries have cut policy rates by a cumulative 250 basis points (on average). Yet borrowing costs have not declined by a similar amount,” the IMF stated.
The IMF pointed out that the average pass-through has been about 60 percent.
Data showed that the Philippines emerged as the third largest in terms of interest rate pass-through with almost 70 percent next to Australia’s 90+ percent and Malaysia’s 80+ percent.
“Whereas lending rates have declined by nearly the same amount as the policy rate in Australia , they have remained relatively sticky in Indonesia ,” IMF said. — Lawrence Agcaoili