By Derco Rosal
As the Bangko Sentral ng Pilipinas (BSP) started to implement interest rate cuts, small business owners are feeling a wave of optimism. For entrepreneurs like Grace Sarmiento, who owns a hardware store in Cagayan, these changes could signify not just relief but also opportunity.
The decision to lower interest rates is often rooted in a desire to stimulate economic growth. By making borrowing cheaper for consumers, the central bank aims to boost spending and investment.
For small businesses, which are the backbone of the economy, access to affordable credit is important.
Sarmiento has been running her hardware store for over a decade. Like many small business owners, she has faced her fair share of challenges, from lower demand to rising operating costs. With the prospect of interest rate cuts, she is more optimistic about the future.
“Lower interest rates mean we can borrow money at a more manageable cost. This could help us expand our inventory, upgrade our equipment, or even renovate the store,” Sarmiento explains. These investments could allow her to compete more effectively with larger retail chains.
In August, the BSP lowered its interest rates by 25 basis points, and economists anticipate further reductions in the coming months.
Speaking with the Manila Bulletin, economists discussed the key factors behind the central bank's decision and assessed the potential impact on Filipinos and the economy as a whole.
Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), believes the decision was driven by easing inflation, with rates dropping to 3.3 percent in August and expected to remain within the target range through 2026.
BSP Governor Eli M. Remolona, Jr. explained in a recent media briefing that the interest rate cut was prompted by weak private consumption in the second quarter, even though construction and public spending drove strong economic growth.
Therefore, the cut was intended to help balance the economy and boost consumer spending.
As Filipinos make ways to stay afloat in the middle of the fluctuating economy, the anticipated rate cuts promise monetary opportunities for consumers.
Rate cuts on economy and consumers
“It means that inflation rate is also coming down,” former BSP Deputy Governor Diwa C. Guinigundo asserted, pointing out that if the BSP lowers the policy rate, it tells us that inflation is less of a worry.
Sounding optimistic, he added that “that is a good signal for households to start spending again, or in a heavier way” because it means cheaper borrowing cost.
Higher spending would propel economic growth since private consumption makes up a large portion of the economy, as measured by the country’s gross domestic product (GDP).
Now that consumers are about to receive good tidings, where can they pour their money?
Guinigundo does not impose that we must invest in business, but with lower interest rates, he said it is worth considering starting or expanding a business.
Lower rates, according to him, reduce the cost of financing business activities. Therefore, by investing, we are also helping the economy spring up.
Besides investing in businesses, we can also consider the stock market. Many stock market investors use their own funds and borrow money, making it another viable option.
Lastly, we can explore fixed-income instruments like government securities, corporate bonds, or special time deposit accounts.
Warning: Invest at your own risk
“Investing at any time is risky. It is riskier when the market is in turmoil or is very volatile,” a major point Guinigundo said when asked about risks in the context of today’s economy.
Potential investors should carefully study their options, understand the companies or instruments they invest in, and be aware of their “risk appetite.”
Risk-loving investors prefer stocks or business ventures, while risk-averse ones favor fixed-income instruments that offer guaranteed returns.
Further, in today’s age, it is all the more important to stay vigilant against investment scams, such as those involving gold certificates or cryptocurrencies.
In sum, the former central bank deputy governor has advised investors to thoroughly research, assess risk appetite, and avoid fraudulent schemes.
When time is on your side
If consumers were to commit to long-term borrowing, what are the things they should consider before doing so? Not much, it appears.
“Probably your reason is that if you borrow on a long-term basis, you have more time to pay back your loans,” Guinigundo presumed.
The reason behind this is that an extended repayment period allows for smaller, more manageable monthly payments compared to short-term loans.
This can help reduce the financial burden as the repayment is spread over a more extended period, such as 10 or 12 years, making it easier to manage the loan and interest costs.
A greener economic horizon
In the long term, if the government can sustain economic growth due to the BSP's initial policy rate cut and boost business activity, it will secure a strong source of revenue.
“If that is possible, then the government can continue funding infrastructure, social services and even social safety nets,” Guinigundo shared.
This would enable continuous investment in public health and education, improving human capital.
In the long run, this benefits the economy by creating a diverse pool of skilled individuals to meet industry needs.