Reports from the BSP show that the country’s lending rate compared poorly with those of other Asian countries, ranking as the fourth highest after Indonesia, India and Hong Kong.
As of April 10, 2003, real interest rates in Indonesia averaged 10.48 percent while the rates in India averaged 7.69 percent and in Hong Kong, 7.09 percent. The Philippines came fourth with 6.88 percent, followed by Taiwan where interest rates were at an average of 5.66 percent.
The country’s April position is a complete reversal from the end-December record where the Philippines emerged with the fifth lowest real interest rate, after Japan, South Korea, Malaysia and Thailand.
Japan, South Korea, Thailand, Singapore and Malaysia continue to have low interest rates of below six percent. The average interest rate in Japan is still at 1.85 percent, fueling jokes in the market that banks in Tokyo had resorted to accosting consumers in dark alleys to force them to borrow at "usurious rates of 1 to 1.8 percent."
BSP deputy governor Amando Tetangco Jr. told reporters that despite the increase in domestic interest rates, the spreads have actually narrowed and the country emerged with one of the narrowest spreads in the region.
The BSP reported the Philippines recorded one of the lowest spreads between lending rates and benchmark Treasury bill rates.
The spread of the Philippine banks‚ lending rate over the benchmark T-bill rate from April 3 to 9 stood at 264 basis points. The Philippines’ spread ranked the second lowest among the Asian countries surveyed after South Korea.
Tetangco said the low-interest rate environment reflected ample liquidity conditions, implying relatively lower cost of capital for business.
"Together with the benign outlook for inflation, the present level of real interest rates is expected to continue and provide a supportive macroeconomic environment that would encourage stronger domestic consumption and investment activity over the coming months," Tetangco said.
The National Treasury has warned that interest rates would continue to go up due to the value added tax.
Interest rates on the benchmark 91-day Treasury bills went up to 7.46 percent last Monday, the highest since Feb. 4, 2002 when it was recorded at 7.501 percent.
The Bureau of Treasury (BTr) warned that interest rates would continue to go up because of the value-added tax (VAT) unless Congress moves to correct the law which shifted the tax on financial transactions from the documentary stamp tax (DST) effective this year. – Des Ferriols