While the transmission of key interest rate cuts to lending rates remains uneven in the Association of Southeast Asian Nations (ASEAN), Japanese investment bank Nomura noted that this connection has massively improved in the Philippines.

“Relative to the previous cutting cycle, the pass-through to lending rates improved in the Philippines but weakened in Indonesia and Thailand,” Nomura said in a report published on Thursday, May 15.

Locally, the effect of the policy rate cuts on lending rates has seen significant improvement, with around 80 percent of the 100- basis point (bp) cut now reflected in lower lending rates—up from just 30 percent previously.

Since it began slashing key borrowing costs in August last year, the Bangko Sentral ng Pilipinas (BSP) has delivered a total of a one-percent reduction from 6.5 percent in 2024. The latest reduction was made on April 10, with the central bank’s Monetary Board (MB) citing global uncertainties and subdued inflation as the main drivers.

Consensus among economic analysts points to another three quarter-point cuts by year-end, bringing the rate down to 4.75 percent.

When the BSP cuts its policy rate, it aims to encourage banks to reduce their lending rates, making loans more affordable to help boost economic activity.

Nomura attributed the improved rate transmission to the BSP’s reforms and its “timely resumption” of reserve requirement ratio (RRR) cuts.

Early this year, the Washington-based multilateral lender World Bank said it expects the BSP’s move to slash banks’ reserve requirements to stimulate lending activity, which has taken effect by the end of March.

Specifically, the ratio for big banks or commercial and universal banks (UKBs) was lowered by 200 bps to five percent from seven percent. For digital banks, the BSP reduced the ratio by 150 bps to 2.5 percent from four percent; and for thrift banks, it was reduced by 100 bps, bringing it down to zero.