Banks not fully transmitting BSP rate adjustments

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February 16, 2026 | 12:00am

MANILA, Philippines — The country’s monetary policy framework has helped bring inflation down, but the transmission of policy rate adjustments to bank lending rates remains relatively weak in the country’s bank-based financial system, the Organization for Economic Cooperation and Development said.

The OECD said bank lending rates “only increased by about 50 percent relative to the increase in the policy rate during the last tightening cycle,” suggesting incomplete pass-through of monetary policy to the broader economy.

One reason cited is the low pass-through of the policy rate to banks’ funding costs. The OECD said interbank market continues to rely heavily on foreign exchange swap transactions, which may blunt the impact of policy adjustments.

Another factor is the limited transmission from funding costs to lending rates, particularly for households. Household lending rates are largely determined by credit risk premiums that dwarf the funding cost component.

“The pass-through of the policy rate to funding costs could be strengthened by measures to further develop the repo market, while the pass-through of funding costs to lending rates could be strengthened by improving information on borrowers in the state-run credit registry to reduce credit risk premiums,” it said.

This would involve enhancing the completeness and accuracy of the Credit Information Corp.’s data, including by complementing it with information from utility companies and online shopping platforms.

The OECD also said structural reductions in reserve requirements and raising awareness of alternatives to bank deposits would enhance the transmission of policy rates to bank lending rates.

With core inflation below the midpoint of the Bangko Sentral ng Pilipinas’ target band and growth expected to remain below trend in the near term amid global trade headwinds, the OECD said there is room to further ease policy while maintaining price stability and continuing to strengthen supervision of mixed conglomerates to safeguard financial stability.

Overall, the OECD assessment suggests that while the BSP’s inflation-targeting framework has been effective, deeper financial market development and stronger credit information systems are needed to ensure policy signals are transmitted more fully to households and businesses.