Economist: Low interest rates pave way for credit-card cap
The low interest rates allowed the Bangko Sentral ng Pilipinas (BSP) to put a ceiling on creditcard charges, an economist said.
“Near record low interest rates provide a conducive environment that allows and somewhat justifies lower credit- card charges, on top of competition among banks and credit- card companies that further bring down credit charges,” RCBC Chief Economist Michael L. Ricafort said.
The BSP has cut the key policy rates by 175 points so far this year, bringing the overnight reverse repurchase facility to 2.25 percent.
Ricafort said that having low interest rates locally and globally is beneficial for the economy as it supports recovery prospects.
At the same time, monetary easing measures are seen driving both the liquidity and demand for loans, helping the economy to bounce back, he said.
“Liquidity infusion measures have led local interest benchmarks to new record lows… and correspondingly reduced borrowing costs that help spur greater demand for loans, generate more investments, create more jobs and greater business activities to mitigate the adverse economic effects of Covid-19,” Ricafort explained.
Unionbank Chief Economist Ruben Carlo O. Asuncion said that capping the credit-card charges can result into banks incurring opportunity costs.
However, Asuncion underscored the need for a reprieve for bank clients as the country deals with the ongoing coronavirus pandemic.
“It’s a difficult balancing act, but government has to do something and everybody, ideally, should pitch in to help the economy to stay afloat,” he added.
Meanwhile, the Bankers Association of the Philippines (BAP) acknowledged in a recent statement the importance of pushing for a creditcard policy reform during a crisis.
“We support this initiative by the Bangko Sentral ng Pilipinas,” BAP Managing Director Benjamin Castillo said. “This will help ease the burden of every household including businesses severely affected by the pandemic.”
In addition, the bankers group said it appreciated the collaboration between the industry and the regulator to fight the adverse impact of the pandemic.
Last week, the Monetary Board greenlighted setting the annual interest rate ceiling on all credit-card transactions at 24 percent. This policy will be effective on November 3.
The BSP said that the interest rates or finance charges on unpaid outstanding credit- card balance should only be 2 percent or lower monthly. The maximum rates are subject to review by the Central Bank every six months.
BSP Governor Benjamin E. Diokno said that the interest-rate cap on credit cards is aimed at helping the micro, small and medium enterprises amid the economic slowdown.
“Amid the rising use of electronic platforms for payments, the issuance will enable credit-card holders to settle financial transactions under more affordable pricing terms,” Diokno said.
As of end-july, the outstanding credit-card loans provided by the big banks for household consumption amounted to P409.05 billion, 27- percent higher than P321.06 billion year-on-year.