Press Release
September 9, 2008

To improve flow of credit in the country
Angara urges review of BSP's policy interest rates

Senator Edgardo J. Angara today pushes for the review of Bangko Sentral ng Pilipinas' policy interest rates to improve the flow of credit in the country.

Speaking before the Development Budget Coordinating Committee (DBCC) briefing on the proposed FY 2009 National Budget, he cautioned the Monetary Board of the constricting impact of policy interest hikes.

"Our country is in a bit economic slow down. Is it really prudent and wise to increase interest rate?," asked Angara who also chairs Senate Committee on Banks, Financial Institutions & Currencies.

He added, "This can prevent businesses from hiring personnel or from expanding their operations. In Europe, which was also affected by slow down, they decided to stay put their rates. In fact the Americans are reducing their rates. Japan acted in the same manner as the Europeans."

From April to August, the Monetary Board had decided to increase by 100 basis points the BSP's key policy interest rates to 6 percent for the overnight borrowing or reverse repurchase (RRP) facility and 8 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also adjusted accordingly.

Angara is wary of the impacts of the adjustments to the currently "constricted" credit system.

"That has constricting impact on businesses," he emphasized. He then suggested that there are non-monetary tools to hamper inflation such as pump priming.

Pump priming is an economic policy taken by governments in order to stimulate the economy to higher levels of output. Actions may include increasing government expenditures and/or reducing taxes.

Recently, the Credit Information System Act (CISA), which seeks to expand the country's credit by gathering credit information from financial institutions such as banks, credit card companies, and government lending institutions, was ratified by both chambers of Congress.

Angara, who authored and sponsored the bill in the Senate, said it will provide for easier access to credit by small businesses, as well as better risk assessment for lenders. He added that it is a "tool for financial development" that can reduce the risk of credit, allow more people to access it, and ultimately contribute to a healthier and more stable financial system.

Angara is the current Chairperson of the Subcommittee C of the Senate Committee on Finance[1].

[1] Subcommittee C handles the budget of the following government agencies: Department of Agriculture (DA), Department of Agrarian Reform (DAR) and the Department of Environment and Natural Resources (DENR); the Commission on Higher Education (CHED), and the State Universities and Colleges (SUCs) system; the Department of Science and Technology (DOST); the Department of Trade and Industry (DTI); Department of Tourism (DOT) and other executive and cultural agencies

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