How to Deal with Lending Rate in the Philippines

The expense of doing business rises when interest rates rise. Consequently, a more volatile stock market results from rising interest rates. You risk suffering more significant losses and losing the security of any money you may have put into stocks. You might want to invest your money in a different way to optimize return but reduce risk as interest rates rise. Rising interest rates will also impact how you manage your credit cards and any possible real estate holdings like in a condo living. Remember that this article only discusses investments generally. For specific investing information, you should speak with your financial advisor.

What is the Lending Rate?

The amount a lender charges a borrower is called a lending interest rate expressed as a percentage of the principal or the loaned amount. A loan's interest rate is typically defined as an annual percentage rate (APR).

A savings account or certificate of deposit earnings at a bank or credit union may also be subject to an interest rate (CD). The interest received on these deposit accounts is measured in annual percentage yields (APY).

An interest-bearing asset, such as a loan or a bond, is subject to interest rate risk because there is a chance that the fluctuation in interest rates will affect the asset's value. The management of interest rate risk has grown in importance, and a variety of instruments have been created to do so. 

What is the Interest Rate in the Philippines?

The Central Bank of the Philippines (BSP) increased the overnight reverse repurchase facility rate by 75 basis points to 3.25 percent at an unexpected meeting on July 13. The action surprised the market because no change in monetary policy was anticipated until August. The rates for the overnight lending and deposit facilities, which set the floor and ceiling of the interest rate corridor, were also increased by 75 basis points to 2.75 percent and 3.75 percent.

Broadening inflation and a more hawkish Fed was perhaps the factors that most influenced the Bank's decision. On the one hand, the Bank considered that "urgent action" was required to maintain inflation expectations in the face of spreading inflation that threatens to have second-round inflation consequences. Wherein rising prices drive wages, which fuels additional price increases in a vicious cycle. On the other hand, the borrowing rate in the Philippines market now anticipates a 100 basis point rise by the Fed in July after U.S. inflation hit its highest level since June 1981. A second reason for the BSP to intervene and raise rates would be that such move would put additional downward pressure on the peso, further raising imported inflation. Finally, the Bank added that the economy could handle tighter financial conditions due to the solid economic growth recorded thus far in 2022.

3 Ways to Deal with Prime Lending Rate in the Philippines

Managing Investments

1. Increase your cash holdings. Selling off part of your bonds or stock investments for cash is a very cautious course of action when you anticipate an increase in interest rates. The money can be deposited into savings or money market accounts, where the interest rates will likely increase along with all the other rates. When you need money, you'll have quick access to it, and it will be in a place that is reasonably "secure" and will increase. 
2. Invest in short-term bonds. Bonds are more stable and secure than stocks, which increases the likelihood that your money will be safe from loss. You can continue making a little bit more money with your investments because government bonds often pay a little more interest than money market or savings accounts. Rising interest rates will be advantageous for short-term bonds, resulting in higher interest payments.
3. Transfer to interest rate hedged securities. By investing in portfolios that hold treasury or investment grade corporate bonds, you can still restrict your exposure if you accept a bit of higher risk and retain your money in securities and stock portfolios. You should thoroughly investigate these and be aware of the holdings in the portfolio. Interest rate hedged securities are a very new and unproven idea. However, you can make more than you would with conventional bonds if you locate the proper product, depending on how much the loan is in the Philippines.

Handling Your Credit Cards

1. Limit your use of credit. Since everyone is asking how much the interest rate is in the Philippines, you should be careful to restrict your use of credit, particularly in a market where rising interest rates are anticipated. Spend no more than you can afford to pay back in full at the end of the month, and stick to your budget so you know how much money you have coming in each month.
2. Look for 0% interest offers on credit cards. For a while, 0% interest rates are frequently provided by numerous lenders as incentives for opening new credit card accounts. You frequently have the option to transfer any outstanding balance from one credit card to another, paying it off with the new card at 0% interest. You might save hundreds or even thousands of dollars by doing this.

Making the Most of Mortgage Rates

1. Monitor the changing lenders' interest rates. Banks typically make their lending interest rates quite clear online and in actual locations. Locate a few banks in your area or online, then check them out over the course of a week or two. Keep track of the fixed rates for various term mortgages and note any changes. Remember that mortgage rate pricing can be manipulated to conceal increases. Be aware of how the rate pricing is also altering to avoid being duped.
2. Buy or borrow early. You should decide to purchase real estate like a condo living type as soon as feasible if you anticipate interest rates to rise in the near future or if you have already noticed a growing trend in interest rates. Try to lock in the best rate if the financial outlook indicates that rates will keep rising.
3. Refinance now, if it helps. This could be the ideal time to recapitalize or refinance if you have managed with a relatively high-interest rate while waiting to benefit from the lowest rate available. Take advantage of the current low rates and refinance if you think that rates will start to rise again before you miss the chance.

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