Bsp Cutting Rates

[teban]

HI po i read in the newspapers lately that the BSP is cutting its rates again. I normally hear this in the Fed cut but I really don't understand what it is for and what it's impact is for us common people.

 

Thanks!

[Dr_PepPeR]

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.

[LYCHEE]

the rate-cut is to encourage borrowing by the public/private sector...downside is it dampens savings

[Enlytnd1]

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.

[Dr_PepPeR]

Banks, like all businesses, will have to bite the bullet anyway. Lending is still one of the core income generators of banks, so if rate cutting encourages lending, then banks will still be thankful for the income. Banks will survive this.

[Enlytnd1]

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.

[Dr_PepPeR]

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.

[jack08]

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.

[Dr_PepPeR]

Most banks do not benefit from a rate cut. It means their treasuries get lower rates when they place the bank's funds and their lending units get smaller incomes. The effect of a BSP rate cut ripples across the financial market.

[rapturousone]

here is a simple graphic explanation: http://www.washingtonpost.com/wp-srv/busin...ics/ratecut.htm

[earlbrooks]

Rate cuts would usually result to lower borrowing costs for businesses and consumers. This would encourage investment, credit and consumer spending in an economy that is slowing down.

[rapturousone]

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.

[reignman]

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.

 

damn.. kakarenew ko lang ng home loan ko ah! hehehe..

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[ganjaman318]

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...