Rate cuts to boost fundraising in the second half

By means of Luisa Maria Jacinta C. Jocson, News reporter

Fundraising and lending by FIRMS activities appear to be increasing the second half of this year amid the expected relaxation the bangko Sentral ng Pilipinas (BSP).

“The BSP’s possible policy shift signals a positive step toward promoting capital formation in the Philippines. By lowering borrowing costs, the central bank essentially makes it cheaper for companies to secure financing,” said Rafael S. Algarra, Jr., group head of East West Banking Corp. Ffinancial markets and asset management, according to an email.

Cristina S. Ulang, chief research officer of First Metro Investment Corp. said the expected rate cuts will make credit “cheaper,” which is good for companies looking to borrow.

This will also “encourage expanded capex (capital expenditure) programs by companies (and) enable greater access to fundraising channels, all for the upliftment of overall economic activities,” she said in a Viber message.

Markets widely expect the central bank to begin its easing cycle next month. This comes as BSP Governor Eli M. Remolona Jr. has repeatedly indicated that they are on track to cut rates on August 15, the Monetary Board’s next policy review. and not meet until the third quarter.

Mr Remolona has said the BSP could cut rates by up to 50 basis points (bps) this year, split into cuts of 25 bps in the third and fourth quarters.

According to Mr Algarra, markets have already “struggled with a prolonged period of high interest rates.”

“This restrictive monetary environment has understandably led companies to postpone expansion and new projects due to high borrowing costs,” he said.

From May 2022 to October 2023, the Monetary Board increased borrowing costs by a total of 450 basis points.

This brought the policy interest rate to the highest point in more than 17 years of 6.5%.

If the BSP cuts rates in August, it would be the first cut since the 25 basis points cut in November 2020 during the COVID-19 pandemic.

Mercantile Securities Corp. Head trader JeFf Radley C. See said these latest signals from the central bank would lead to a greater opportunity for corporate fundraising.

“Reducing interest rates will be a sign of bullish sentiment for the real estate sector, especially real estate investment trusts (REITs),” See said in a Viber message.

For its part, D&L Industries, Inc. President and Chief Executive Officer Alvin D. Lao said the impact of lower interest rates would be felt in terms of lower interest charges on existing loans.

‘I actually believe that FIn general, almost everyone has been expecting interest rates to fall since last year and have probably stayed at oFf taking out large loans in anticipation of lower interest rates. It is likely that credit activity will increase if interest rates are lowered,” he said in an email.

Damosa Land President Ricardo F. Lagdameo said most companies will be able to increase capital expenditures against the backdrop of reduced interest rates.

“I think many developers have continued their investment activities despite the higher rates to take advantage of the current opportunities. With interest rates starting to fall soon, spending is likely to rise,” he said in an email.

This could also potentially reduce costs for consumers, Mr Lagdameo said.

“Apart from the fact that we as developers will soon (hopefully) be able to enjoy lower interest rates, what will also bring more confidence is that interest rates for borrowers or end-users of real estate products will also normalize. I expect this will increase the demand for housing,” he added.

Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said interest rate cuts would also boost stock market activity.

“Interest rate cuts would also help improve market conditions in terms of higher stock market prices that would ultimately lead to more equity sales in the form of initial public offerings (IPOs), secondary offerings, preferred stock and equity rights offerings, among others,” he said in a 2011 Viber message .

The Philippine Stock Exchange (PSE) is targeting six IPOs this year. So far this year, the local exchange has had three IPOs: OceanaGold (Philippines), Inc.; Citicore Renewable Energy Corp.; and NexGen Energy Corp.

On the other hand, Mr. Algarra said the full impact of the rate cuts may not be felt immediately.

“While we expect to see an increase in fundraising activity, we believe there will likely be a more significant acceleration in the early months of next year. This is due to the time it usually takes for companies to do this Ffinalize and secure investment plans Ffinance,” he said.

For the coming months, Mr. Algarra said it will be crucial to monitor key indicators such as loan disbursements, investment approvals and business sentiment.

“These statistics will provide valuable insights into the eFfectivity of the BSP’s policy change and its ultimate impact on the Philippine economy.”

“Overall, the BSP’s decision to cut interest rates provides an opportunity to break free from the constraints of high borrowing costs and propel the Philippines toward a period of economic turmoil.new economic growth,” he added.