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Philippines: Rate hike benefit passed on to depositors – BSP
MANILA, Philippines — More than half of the rate hike benefit since May last year has been passed on to depositors, the Bangko Sentral ng Pilipinas said.
BSP Deputy Governor Francisco Dakila Jr. said depositors benefited from the tightening cycle of the central bank’s Monetary Board in the form of higher time deposit rates.
He said the average interest rate for short-term time deposits increased by 310.5 basis points to 3.68 percent in February from 0.58 percent in May last year.
Likewise, the average rate for long-term time deposits rose by 212.4 basis points to 5.14 percent from 3.01 percent.
During the period, the BSP raised key policy rates by 400 basis points to tame inflation and stabilize the peso that slumped to an all-time low of 59 to $1 last October.
Since it started raising interest rates in May last year, the Monetary Board has so far hiked interest rates by 425 basis points, including the smaller 25-basis point increase delivered last March 23.
This brought the overnight reverse repurchase rate to a 16-year high of 6.25 percent from an all-time low of two percent. This was the highest since the 7.50 percent in May 2007.
“So that illustrates that there has been policy rate pass through to bank interest rates. Actually not only that, but to the effective lending rates,” Dakila said.
BSP Governor Felipe Medalla said that current account and savings account (CASA) depositors usually get a smaller pass-through compared to other deposit instruments.
Medalla said the Monetary Board sees the need for the follow-through monetary action to ease persistent price pressures from here and abroad, as well as further realign inflation expectations with the target band over the policy horizon.
“Further policy tightening will also preserve the buffer against external spillovers amid heightened uncertainty and volatility emanating from financial sector distress in advanced economies,” Medalla said.
The BSP chief was referring to the impact of the collapse of Silicon Valley Bank (SVB) and Signature Bank in the US and the crisis being faced by Credit Suisse in Europe.
“Nevertheless, even as the BSP has assessed that the Philippine banking system is resilient to evolving market conditions, the BSP continues to keep a watchful eye over developments in the international banking industry,” Medalla added.
The BSP also lowered its inflation forecasts to six percent from 6.1 percent for 2023 and to 2.9 percent from 3.1 percent for 2024. Headline inflation slightly eased to 8.6 percent in February from 8.7 percent in January, but remained well above the central bank’s two to four percent target range.
On the other hand, core inflation further accelerated to 7.8 percent in February from 7.4 percent in January.
“The Monetary Board’s decision was based on the sum of new information and its assessment of the effects of past policy actions, which warranted a continuation of monetary tightening to anchor inflation expectations. With core inflation rising in February despite a modest decline in headline inflation, further monetary policy action was deemed necessary to address broadening price impulses emanating from robust domestic demand and lingering supply-side constraints,” Medalla said.
Source: https://www.philstar.com/business/2023/03/27/2254660/rate-hike-benefit-passed-depositors-bsp