The importance of domestic interest rates forecast for 2022
Since the emergence of the COVID-19 pandemic in 2020, entire countries worldwide have been affected. With the World Health Organization (WHO) reporting 276,436,619 confirmed cases of COVID-19 worldwide, governments have scrambled to cope up with the devastating effects of the pandemic. Lockdowns were initiated, strict health protocols were set in place, and vaccinations were distributed globally.
Vaccination mandates were put into place by countries to counter the massive spread of COVID-19 worldwide | Photo by Frank Meriño from Pexels
The healthcare sector took a massive weight, with some hospitals lacking space and staff. However, the biggest loser in this crisis was the economy. Organizations and businesses had to close or shut down due to the high costs of physical operations. Investors became fearful of spending their money in the stock markets, even causing one of the world’s biggest cryptocurrencies, Bitcoin, exchange rates to crash.
No one was exempted, especially in the Philippines. In fact, the Philippine economy was hit the hardest during the pandemic as thousands of lives, profits, and jobs were lost. The Asian Development Bank even forecasted a slow expansion 2021 rate for the Philippines. The current GDP growth rate is predicted to stay at 4.5%, one of the lowest rates the country experienced.
Various businesses and transportation systems had to cut down population capacities, decreasing sales and profits | Photo by Ketut Subiyanto from Pexels
Despite the tribulations, Filipinos remained hopeful as herd immunity set in and the number of COVID-19 cases decreased. However, the economic outlook remains uncertain with a new COVID-19 variant like the Omicron coronavirus.
In line with this, Filipinos need to be vigilant for the domestic interest rates forecast for 2022.
In times of fluctuation and crisis, it is helpful to be informed at all times on the current interest rates. As of December 2021, the Bangko Sentral ng Pilipinas (BSP) remains its current benchmark interest rate of 2%, aiming to support the Philippines in its slow recovery against the pandemic. It maintains the predictions of market analysts and think tanks, with BSP forecasting a 3.0% fall projection rate of inflation, well within the target band of 2.0% to 4.0%.
The reason for the sustained accommodation of the 2% interest rate is due to the threat of another prolonged lockdown with restrictions since there have been reports of the new Omicron coronavirus in the country. Compared to the years 2015 to 2019, the interest rates in the country have played around the boundaries of 3.00% to 4.75%. In 2021–2022 though, 2.00% is the current low record for a 200-basis-point cut in interest rate, with BSP undergoing a “slowly but surely” monetary policy normalization. This is done to ensure a stable economic recovery, all the while anticipating high inflation and an uncertain growth outlook.
BSP maintains the current record-low interest rate of 2% to increase credit demand by 2022 | Photo by Pixabay from Pexels
However, some experts say that if the Philippine economy becomes less burdened down the road, Filipinos can expect an interest rate hike by the period of Q2 in 2022. Suppose things start to look up in the long-term, with credit demand rates also increasing. In that case, BSP Governor Benjamin Diokno may decide to change the rate at around 2.50%, according to econometric models from the Trading Economics website.
However, despite this optimism, other economists beg to differ- claiming that BSP will remain the status quo for 2022, as the Philippines continues to lag in its recovery, with consumption recovery rates being average at best, experts say.
Apart from the domestic interest rates forecast for 2022, Filipinos also need to take note of current related rates with regard to loans and financing.
Interbank rates remain at 1.81%, with deposit interest rates at 1.50%. The lending rate is also at 2.00%, while the cash reserve ratio is at 12.00%, according to data from September to October 2021. Furthermore, loans To private sectors are marked at around PHP 8206760.00 million, while loans to banks are at PHP 350616.14 million.
In reading these domestic interest rates for 2022, why do Filipinos need to stay in the know about all this information?
First off, knowing the domestic interest rates forecast for 2022 is helpful to both Filipino investors, lenders, and borrowers.
Interest rates are percentages that define how much a borrower pays to get a loan and how much a lender receives in loaning. Interest rates are proportional to inflation rates. The higher the inflation rates are, the higher interest rates are to curb the growth. Since the BSP is trying to push the country into a state of economic growth and recovery, the Central Bank decided to maintain its low-interest rates.
Having a low-interest rate would encourage Filipinos to borrow money and invest, spurring excitement! From car loans to home equity loans, Filipinos would be enticed to borrow money at a stable rate of 2.00%! This would cause a chain reaction in the country’s economic environment since interest rates affect a lot of economic factors. For example, stocks such as banks and utilities are particularly sensitive to interest rate changes.
Moreover, knowing the domestic interest rates forecast for 2022 would help investors evaluate their portfolio’s degree of exposure to fluctuating interest rates. After all, when it comes to investment accounts, investors need to know the current economic conditions and policies before making any financial investments in order to minimize risks!
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Other than investors, changes in interest rates also affect a modern-day Filipino consumer with loans being taken here and there! For borrowers with fixed-rate loans, interest rate changes won’t make much impact, but for ones with variable rate loans, it’s better to keep an eye on the rates before going in!
In addition, knowing the domestic rates forecast for 2022 can help Filipino entrepreneurs venture into new businesses!
Since the BSP is reinforcing the Philippines as an economic backbone, their accommodating interest rates would allow more entrepreneurs and budding business owners to jump into the capital market! Thus, this results in more job opportunities, more products supplied in the industry, and more chances for profits since the interest rates for 2022 give more leeway.
When interest rates are high, lending rates are lower for banks because the risk of not being able to afford debt payments and not gaining massive returns of investment (ROI) is higher for both businesses and entrepreneurs. It would be more challenging for companies to get loans because banks would be picky in choosing which clients would produce them reasonably-higher interest rates on their money!
In contrast, start-ups and innovations would bloom with low-interest rates. Since almost all companies have outstanding loans- having lower interest rates would encourage debt payment with leftover funds for growth, enabling more companies to take the plunge and get a loan!
With lower interest rates, especially on loans, more consumers would splurge on buying big-ticket purchases | Photo by Ono Kosuki from Pexels
Moreover, because interest rates are low, consumerism would also be at its finest since people would have more money to buy products and services even after loan payments. Because there is also a low return on their financial instruments, people would opt to spend their savings instead! Especially during the pandemic, people have turned to retail therapy to cope with the feeling of being stuck at home. Some people started buying more house plants, adopting expensive dogs, and even buying luxury homes for sale due to ease of mortgage payments!
This creates a ripple effect or a cycle of expansion, in which businesses can partake in capital-extensive projects, and consumers can advocate for those said projects, increasing sales.
Overall, there are many reasons to watch over the domestic interest rates forecast for 2022.
Whether you’re an existing or budding investor, lender, borrower, entrepreneur, homeowner, employer, or consumer, interest rates are essential matters for your finances. To be smart with your loans and debts, you must always take advantage of the economic conditions that the country is in by being knowledgeable on market trends and interest rates.
In the pursuit of a more stable economic growth and recovery, the Central Bank of the Philippines will adjust the interest rates accordingly with the inflation rates. Whether inflation will rise or fall in the coming quarters of 2022, one can only hope that the Philippines is on its way to seeing a better economy.