Interest rate cuts pay off for Philippine economy

16:31, April 07, 2011      

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The Philippine central bank's decision to keep its borrowing costs at a record low in 2010 had helped cash-strapped households to spend on big-ticket items last year, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.

Total consumer loans of commercial banks and thrift banks grew by 14.4 percent to 472.6 billion pesos (10.95 billion U.S. dollars) in the last quarter of 2010, the BSP said.

The central bank noted that while commercial banks held bulk of the banking industry's total consumer loans at 60.2 percent, money lent out by thrift banks grew at a faster rate year-on-year at 14. 8 percent compared with the 14.2 percent growth of commercial banks.

With the returns from keeping funds idle in BSP vaults kept at record lows, the monetary authority said more banks decided to look for higher yields elsewhere, particularly by lending to consumers.

The BSP said most consumers borrowed money from the banks to pay for automobile purchases. Car loans went up by 24.4 percent in the fourth quarter of 2010.

Data from the Chamber of Automotive Manufacturers in the Philippines showed that 168,490 cars were sold in 2010 compared with the 132,444 vehicles sold in the previous year. This year, the CAMPI expects car sales to grow by 5 percent.

Meanwhile, residential real estate loans grew by 15.8 percent in the said period, while credit card receivables as of end- December 2010 reached 120.3 billion pesos (2.7 billion U.S. dollars), 4.2 percent higher than the previous year.

Other consumer loans, which include those granted to individuals to finance other personal and household needs, also went up by 14.4 percent.

Philippines' central bank decision to refrain from raising its key policy rates at 4 percent for overnight borrowing rate and 6 percent for overnight lending rate for over a year had helped boost consumer spending.

Unlike its export-oriented neighbors, about two-thirds of the Philippine economy is driven by consumer spending. This was supported by the 18.76 billion U.S. dollars in remittances that the country's eight million migrant workers sent home to their families in 2010.

Last year, the Philippine economy expanded by 7.3 percent, its highest growth in 34 years, from a low of 1.1 percent in the previous year.

This year, the government expects the economy to continue its growth momentum albeit at a slower pace.

Inflationary pressures brought about by the increase in the prices of basic commodities had also pushed the BSP to raise its key policy rates by 25 basis points in its last meeting.

Source: Xinhua
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