MANILA, 14 November 2025 – The monetary-easing moves by the Bangko Sentral ng Pilipinas (BSP) are losing much of their punch in the real economy, as persistently high lending rates in the Philippines are undercutting the effect of rate cuts.
Since last year, the BSP has trimmed its key policy rate by nearly two percentage points to 4.75%. The intention was to nurture growth by making borrowing cheaper for households and businesses. Yet, despite that cut, home-loan rates offered by the country’s major banks have barely budged. For example, BDO Unibank Inc. is charging a 6% fixed rate for the first year on new housing loans, or alternatively 6.5% for a five-year fixed term, roughly unchanged from minimum offers in 2024.
Why Borrowing Costs Stay High
Several factors are behind this disconnect between policy easing and loan cost reduction:
- Banks are reluctant to pass on full rate cuts to borrowers, citing risks such as funding cost, credit-risk burden and margin compression.
- The fixed-rate offerings (such as the 6 %/6.5 % products) serve as floor rates which are sticky even when policy rates fall.
- Non-rate factors, such as overhead, provisioning for non-performing loans and bank balance-sheet constraints, keep a floor beneath loan pricing.
- The structural banking environment in the Philippines may limit banks’ ability or willingness to reduce spreads quickly, especially amid global or domestic uncertainty.
Implications for Policy and Economy
For the Philippines, the findings pose two major consequences:
- Diminished policy transmission – If borrowing costs don’t fall in tandem with policy rates, the intended stimulative effect of rate cuts is muted. Lower cost of credit is a key channel through which monetary policy supports consumption, housing and investment; when it fails, growth support may be weaker.
- Household/Business stress – Households expecting cheaper financing may be disappointed and investment decisions may be delayed if banks hold rates steady. The uneven pass-through could reduce the pace of recovery or the potency of policy easing.
What to Monitor Going Forward
Market observers and policymakers should watch for:
- Whether banks begin to reduce loan rates further and how rapidly they pass on policy rate cuts.
- Trends in new-loan growth and housing-loan uptake, to gauge whether high fixed rates are dampening demand.
- The next policy-meeting decisions by the BSP: their commentary may signal adjustments given muted transmission.
- The impact on other credit segments (business loans, consumer credit) beyond housing, for signs of broader transmission weakness.
