Easing bank rates will refuel property, retail

Easing bank rates will refuel property, retail | Daily Tribune

Many households continue to sustain spending for their basic needs and spare some funds for miscellaneous or recreational goods and services this year.

Bankers and traders expect consumers to further loosen their fists next year on big-ticket items like real estate and automobiles, following signals of easing interest rates from the Bangko Sentral ng Pilipinas (BSP).

Bank of the Philippine Islands chief economist Emilio Neri Jr. said the BSP might cut its policy rate for private lenders by a total of 50 basis points next year due to relatively low inflation rates.

“China’s surplus manufacturing capacity might also lead to an influx of cheaper imports into the Philippines, which could further curb inflationary pressures,” Neri said.

President Trump’s focus on expanding US oil production may also further dampen oil prices next year, potentially reversing the notable rise in pump prices since 2022,” he added.

According to the Philippine Statistics Authority, the country’s average inflation in the first 11 months settled at 3.2 percent, which was within the BSP’s target band of 2 to 4 percent, due to cheaper rice and utilities.

Due to manageable inflation, the BSP Monetary Board cut its policy rate from 6.5 percent to 5.75 percent, with a 25 basis-point cut each in August, October, and 19 December to support economic growth through higher consumption of goods and services backed by loans.

Consumer loans from universal and commercial banks in October slightly grew by 23.6 percent from 23.4 percent in September on the back of higher auto loans and credit card transactions, BSP reported.

Falling interest rates might finally spur a rebound in real estate as banks and consumers adjust their financial plans, Joey Bondoc, director of research at property consultancy Colliers Philippines, said.

“We’ll probably see the full effect of the latest 25-basis point cut by the BSP by mid-2025. Due to high interest rates, developers are not launching more mid-income projects. The country’s average mortgage rate has been high at 8.2 percent,” he said.

“It will take five years for unsold ready-for-occupancy units to be fully absorbed by the mid-income segment. These are 21,000 units or P130 billion in inventory,” he added.

Due to the massive supply of real estate, BSP reported prices of residential units dropped in the second quarter to 2.7 percent from 6.1 percent in the previous quarter.

OFW transfers’ magic remains

Rizal Commercial Banking Corp. chief economist Michael Ricafort added remittances from overseas Filipino workers could support household consumption back home as data on remittances consistently show at least 3 percent growth each year, despite challenging global economic conditions.

“That is more than $40 billion a year. That’s the fourth largest in the world after India, China and Mexico,” he said.

However, Neri said the consumers should remain cautious in spending as reelected US President Donald Trump, who will be inaugurated on 20 January, signals higher global inflation rates through high tariffs on imports and anti-immigrant policies.

Trump promised to raise tariffs on all imports by at least 10 percent which economists said could limit supplies of materials from exporters or be passed to consumers, resulting in higher global inflation.

Neri said the BSP might consider slowly cutting its policy rate in keeping close to the US Federal Reserve’s own rate to also maintain healthy investment and foreign exchange levels.

“In an adverse scenario, higher tariffs and mass deportations may re-ignite inflation in the US, which could force global central banks to pivot to monetary tightening,” he said.