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As inflation slows, bank lending is expected to increase much more.

Based on predictions for a slowing in the domestic inflation rate, universal and commercial banks’ (U/KBs) growth of loans provided is anticipated to improve in the upcoming months.

The Bangko Sentral ng Pilipinas (BSP) revealed that bank lending increased by 10.1 percent in March of this year, barely changing from the 10 percent recorded in February.

Although the most recent result is among the slowest in a year, Michael Ricafort, chief economist of Rizal Commercial Banking Corporation (RCBC), noted that bank loan growth is “still decent.”

He blamed higher interest rates—both domestically and abroad—for the slower rate of growth in bank lending, as these rates reduced consumer demand for loans, increased inflation, and increased the possibility of a U.S. recession.

To combat the high inflation rate in the nation, the Bangko Sentral ng Pilipinas (BSP) has increased its key rates by 425 basis points since May 2022, bringing them to 6.25 percent.

After reaching a 14-year high of 8.7 percent in January of last year, the rate of price increases in the domestic economy fell to 6.6 percent in April of that year.

The average inflation rate throughout the first four months of this year, at 7.9 percent, is still higher than the government’s target range of 2 to 4 percent.

Although the average inflation rate for this year is expected to be about 6%, the monetary authorities predict that inflation will begin to decrease to within-target levels in the final quarter.

According to Ricafort, “Moving forward, these risk factors are still slightly overshadowed by measures to reopen the economy towards great normalcy that fundamentally increased demand for loans amid more jobs/employment, sales, income/livelihood, and other business/economic activities.”

He states, “Businesses and industries can also plan better and become more decisive with new investments and expansion plans, which entail more demand for loans/credit/financing and other fund-raising activities.”

“Possible easing of inflation for the upcoming months would, in turn, also help fundamentally ease interest rates/borrowing costs/financing costs, thereby would also help spur loan demand/growth, going forward,” the economist continued.

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