Rate cuts have limited impact on credit growth

While raising interest rates effectively tightens credit conditions and slows economic activity, lowering rates does not necessarily boost lending, according to the Bangko Sentral ng Pilipinas (BSP) Research Academy.

- By KEISHA TA-ASAN

BSP Research Academy principal researcher Carolina Escranda and BSP Department of Economic Research bank officer V Bernadette Marie Bondoc-Quiban said the impact of monetary policy on banks' lending activity is asymmetric, with evidence of transmission during restrictive periods but not during accommodative ones.

"Central banks can 'pull' back economic activity by raising interest rates, but they cannot 'push' it forward simply by lowering rates," Escranda and Quiban said.

They said that during restrictive periods, higher interest rates increase borrowing costs, reducing loan demand and tightening credit supply.

However, lowering interest rates may not be enough to boost lending.