Expansion of firms at risk due to higher rates

Higher interest rates may address the monster inflation in the country but may soon constrict Philippine companies’ capacity to expand as borrowing costs rise, according to industry players.

“Companies will further be saddled by the additional burden of borrowing and overhead costs. It’s a major domino effect. Almost all segments will be affected. And there may be another 50 basis points rate hike and effects will result in exaggeration of other costs,” said a director of a listed conglomerate who declined to be named.

“If you’re an importer of raw materials, your cost of imports – because of the peso depreciation – has automatically become more costly or prohibitive. If you’re accessing banks to support your imports, you will be saddled with the additional costs of the resulting 50 bps interest rate hike,” the source said.

The Bangko Sentral ng Pilipinas (BSP) raised interest rates last week by another 50 basis points to tame inflation, the second in two months and the fourth hike since May, bringing the central bank’s policy rate to 4.5 percent.

On the other hand, some players concede it’s a positive step taken by the BSP given the conditions in the global environment.

“The 50 bps will make it more expensive to borrow, but it’s a good move by the BSP in light of rising interest rates,” JG Summit Holdings Inc. president and CEO Lance Gokongwei told over the weekend.

And while higher interest rates would also increase borrowing costs, Gokongwei said that in the case of JG Summit, most of its loans are fixed-term borrowings.

“Most big companies like JG Summit have strong balance sheets though, with most of our loans already fixed long term,” he said.

But investment bankers said borrowing costs would increase

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