BSP Deputy Governor Diwa Guinigundo said the last assessment of the Monetary Board (MB) detected none of the factors that would warrant any adjustment in policy rates, at least for the time being.
"Is there spiraling inflation expectation? Or sharp and prolonged peso volatility? Or are there second-round effects?" Guinigundo said. "So far based on our recent assessments, none of these is present," he said.
On the other hand, however, banks have also started asking the BSP to lower its policy rates, supposedly to encourage bank lending which has been lagging behind the growth in the domestic economy.
Guinigundo would not speculate on the Monetary Board’s position on the possibility of lowering its policy rates but according to one MB official, lowering the BSP’s policy rates would not solve the lackluster lending activity in the banking sector.
Although lowering policy rates would have the effect of reducing the borrowing costs, the MB official 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.
BSP Governor Amando M. Tetangco Jr. said earlier 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."
On the other hand, Tetangco said banks are still carrying bad loans in their portfolios and this has persistently kept the institutions cautious over lending to corporate borrowers.
Tetangco said banks are also bracing against the full impact of the International Accounting Standards and the Basle II Convention which required them to comply with international standards.
The capital adequacy ratio of the banking industry is expected to go down from the current average range of 16 and 17 percent to 13-14 percent once the industry is fully compliant with these provisions, Tetangco said.
Once completed, Tetangco said the industry would be in better shape but with lower capitalization than the present average.