Consumer loan rates steady in face of looming central bank tightening

HOMEBUYERS with jumbo mortgages have less to fear about the end of ultra-low borrowing costs, while consumers contemplating personal loans or car financing have time to lock in affordable fixed-rate deals, bankers said.

Today’s the D- day when the Bangko Sentral ng Pilipinas (BSP) decides on whether to close the era of cheap money but it’s unlikely to pull surprises. It’s widely expected to keep interest rates at where they have been since 2014, according to a BusinessWorld poll published Monday.

The Philippine central bank’s Thursday rate- setting meeting — its last for 2017 — comes just hours after Janet L. Yellen delivers her final press conference as chairwoman of the US Federal Reserve.

HONG KONG/SEOUL/MUMBAI/ — Years of cheap money across Asia have left a legacy of surging debt that will force the region’s central bankers to be cautious when they eventually follow in the footsteps of South Korea by raising interest rates.

In South Korea, whose borrowing costs were boosted on Nov. 30, household debt has ballooned to about 150% of disposable income. It’s an even larger 194% in Australia. In China, it’s companies feeling the strain with corporate debt equating to about 160% of gross domestic product.

Years of unprecedented stimulus have swollen the Bank of Japan’s balance sheet to almost the size of the economy. Given the two percent inflation target is still in the distance, a tightening of monetary policy remains a long way off, so that debt pile is set to keep on swelling.

With the Federal Reserve set to lift its benchmark rate this week and forecast to do so three more times next year, investors’ taste for Asian assets is set to be tested. If and when Asian monetary authorities follow suit next year, the region’s mountain of debt will mean each incremental move packs an ever greater punch.

“Asia’s high debt leaves it exposed to a global repricing of credit risk, possibly triggered by inflation surprises,” economists at Nomura Holdings, Inc. led by Rob Subbaraman, head of emerging markets economics and Asia ex-Japan fixed income research, wrote in a note.

The vulnerabilities vary and not every central bank in the region will be raising interest rates. But it may not be a coincidence that one of the nations with low household debt — the Philippines — may be one of the most aggressive in raising interest rates next year. Mr. Subbaraman said he expects four increases.

At the other end of the spectrum is Australia. The central bank there left its official rate unchanged at a record low 1.50% on Dec. 5 and warned that growth in housing debt is outpacing growth in income.

South Korea’s household debt, including loans and purchases on credit, surged to 1,419.1 trillion won ($1.3 trillion) at the end of September, despite efforts from the government to cool the property market. Considering that about 70% of financial institutions’ loans to households are floating rates, a 25 basis points increase in lending rates would lead to an overall 2.3 trillion won rise in interest payments per year, according to Bank of Korea estimates. — Bloomberg