Banks expect the moderate growth in loans to persist until the middle of next year, as consumers remain cautious of record-high inflation and interest rates.

China Banking Corporation chief economist Domini Velasquez said last Saturday that consumers will still borrow funds but only for small purchases through credit cards.

“However, for big-ticket spending, consumers might hesitate to borrow given higher interest rates. For example, recent data on bank lending shows that auto lending is already negative in January.”

Velasquez sees consumers limiting expenses to possibly extend to next year.

“We expect borrowing for big-ticket items to fall this year, and maybe in the middle of next year.”

New rate adjustment seen

Inflation accelerated to a 14-year high at 8.7 percent in January, before barely slowing down to 8.6 percent last month, according to the Philippine Statistics Authority. Lower transport and food prices were the main drag factors.

Meanwhile, the policy rate from the Bangko Sentral ng Pilipinas has climbed to 6 percent, the highest after nearly 15 years.

BSP said its Monetary Board might further raise the rate to slow inflation to 2 percent to 4 percent this year to regain economic balance.

“Currently, real interest rates, or inflation minus policy rates, remain positive and this needs to go to negative territory for a contractionary monetary policy and to dampen demand-side price pressures,” Velasquez explained.

While sustained high consumer spending partly drove inflation, Rizal Commercial Banking Corporation chief economist Michael Ricafort said this is also the reason demand for loans will persist.

“Higher prices also reduce their disposable incomes, thereby increasing their need to borrow with less money for other purchases.”

BSP will decide whether to raise or keep its policy rate on 23 March. In general, economists predict the central bank will bump it up by 25 basis points.