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This is just an opinion, but this would mean interest rates across the finance industry will go down, so less people would favor going to banks or the money market to save/invest and try to put their money somewhere else, like in capital assets or spend it on consumer items. It would also encourage people to borrow since lending rates would also go down.

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  • 2 weeks later...

It means corporate and personal borrowing will benefit from a lower interest rate which in turn leads to a lower income to those who are lending money or buying securities such as bonds. This is a double-edged sword since lower rates impact lenders' ability to attract deposits and will further undermine troubled banks.

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yes Doc, no doubt about it, only the troubled banks will feel the pain. Lending siphons out funds away from banks, but with less deposits, it won't be long before troubled banks runs out of funds to lend. You add troubled creditors who are unable to pay and you created lending-borrowing mess.

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yes Doc, no doubt about it, only the troubled banks will feel the pain. Lending siphons out funds away from banks, but with less deposits, it won't be long before troubled banks runs out of funds to lend. You add troubled creditors who are unable to pay and you created lending-borrowing mess.

 

So true, and in fact I can think of one commercial bank in that kind of trouble.

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BSP rate cut

 

means the BSP lowers its overnight borrowing & lending rates facility to banks in good standing with them. overnight may mean 1 day, 7 days, 15 days, 30 days. Every once a month the monetary board of the BSP will held a meeting to establish the rate. It may either go up or go down depending on their analysis of the market condition.

 

It does not follow that a rate cut will mean a lower interest rate on your corporate or personal loan. It depends on the bank which gave you the loan or how it is established in your loan contract. the BSP rate is only a guide or reference point.

 

Only the borrowers from BSP, whch is the banks, will benefit directly from a rate cut.

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  • 3 weeks later...

According to Keynes: The classical theory of the rate of interest seems to suppose that, if the demand curve for capital shifts or if the curve relating the rate of interest to the amounts saved out of a given income shifts or if both these curves shift, the new rate of interest will be given by the point of intersection of the new positions of the two curves. But this is a nonsense theory. For the assumption that income is constant is inconsistent with the assumption that these two curves can shift independently of one another. If either of them shift, then, in general, income will change; with the result that the whole schematism based on the assumption of a given income breaks down. The position could only be saved by some complicated assumption providing for an automatic change in the wage-unit of an amount just sufficient in its effect on liquidity-preference to establish a rate of interest which would just offset the supposed shift, so as to leave output at the same level as before.

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  • 5 years later...

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Lower rates = better business bottomline. You save on interest costs when BSP lowers down the rate. Eto kse yun guiding rate ng banks sa pagpapautang.

 

Lower rates is like the BSP encouraging people to spend more... it also acts as a driver for stock markets to heat up since people would be looking for other financial tools to increase the bang for their buck... higher rates signal inflation just around the corner hence the need to mop up the excess liquidity...

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  • 2 weeks later...

Lower rates = better business bottomline. You save on interest costs when BSP lowers down the rate. Eto kse yun guiding rate ng banks sa pagpapautang.

 

This is not always the case. Recent example was pre-May 2013 before Bernanke announced "end of US quantitative easing." We later find out this was not true. But anyway...

 

If you recall, ForEx was in 40 - 41 range. Primarily driven by hot money coming in since PH had one of the highest rates compared to other emerging markets. So in that case, the high rates (relative to other countries) was a driver for economic growth.

 

Post-May 2013, what happened? Because US announced QE may end soon, liquidity suddenly started going from emerging markets back to the US. In a span of one-month, both ForEx and PH equities were severely hit.

 

Anyway, point is that the driver for the pre-May 2013 good ForEx and Equities in the PH was high rates.

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