INFLATION is the primary driver of the decisions made by the Monetary Board on whether or not to raise key policy rates, the Bangko Sentral ng Pilipinas (BSP) said.
BSP Governor Felipe M. Medalla made the pronouncement following the decision of the State Bank of Vietnam to cut its key rates by 100 basis points.
Bloomberg reported on Tuesday that Vietnam’s central bank unexpectedly cut the rate at which it lends to banks in its bid to support economic growth as inflation slowed.
“Our policy rates are largely driven by our inflation forecasts,” Medalla told the BusinessMirror via Viber on Thursday when asked whether Manila would consider following Vietnam’s lead to shield the Philippine economy from headwinds.
The Philippine Monetary Board, since June last year, has raised interest rates by 375 basis points from 2 percent on June 23, 2022 to 6 percent on February 16, 2023. Jumbo rate hikes of 75 basis points were implemented in July 2022 and November 2022.
Vietnam is one of the most competitive economies in Southeast Asia based on foreign direct investments (FDI) that it attracts. Data from the United Nations Conference on Trade and Development (Unctad) showed Vietnam’s FDI inflows reached $15.66 billion while those that reached the Philippines only amounted to $10.518 billion in 2021.
Despite the pandemic, Vietnam’s FDIs still reached $15.8 billion in 2020 while the Philippines only saw $6.822 billion in foreign investments.
To maintain its competitiveness and retain its status as one of the world’s fastest-growing economies, the State Bank of Vietnam (SBV) reduced the discount rate to 3.5 percent from 4.5 percent effective Wednesday, according to a statement on its website. The authority also reduced the overnight lending rate in the inter-bank market by 100 basis points to 6 percent and lowered the cap on the lending interest rates for short-term loans in some sectors to 5 percent from 5.5 percent.
The regulator, which uses a combination of rates to guide its monetary policy, kept the benchmark refinancing rate unchanged at 6 percent.
The Bloomberg report noted that the reduction in discount rate will help bring down the cost of funds for banks, according to Nguyen Quoc Hung, general secretary of Vietnam’s Bank Association. Banks can now borrow from the SBV at a lower rate, and in turn, reduce their lending interest rates to businesses, said Hung, who was formerly head of credit department at the central bank.
Higher credit off-take will spur consumption and help the nation retain its status as one of the world’s fastest-growing economies. While Vietnam’s gross domestic product rose 8.02 percent last year—among the quickest in Asia—the World Bank sees expansion moderating to 6.3 percent this year amid global uncertainties.
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