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BSP considers cap on property loans to prevent price bubbles


by Max Estayo and Karl Lester M. Yap

[ manilastandardtoday.com ] February 13-14,2010

THE BANGKO Sentral may ask banks to extend fewer property loans to prevent asset-price bubbles if capital inflows persist, Deputy Governor Diwa Guinigundo told reporters Friday.

Lowering the cap on how much banks could lend for real estate “is an option, part of macro-prudential measures” that might be implemented “if warranted,” Guinigundo said.

Capital inflows and remittances sent home by Filipinos overseas might fuel purchases of stocks and property, he said.

Low interest rates in the United States and Europe and faster economic growth in Asia are spurring capital flows into the region’s economies, prompting policy makers from China to India to start curbing liquidity. China this year ordered banks to set aside larger reserves, tightened home lending and targeted slower loan growth than in 2009.

The Bangko Sentral kept its benchmark interest rate at a record-low 4 percent last month even as it raised the rediscounting rate that it charges lenders for borrowing money from the central bank by half a percentage point to 4 percent.

A delayed exit from stimulus in developed economies might prompt the Philippines to start withdrawing its stimulus measures, Guinigundo said. The central bank might unwind its liquidity measures first and adjust policy interest rates later, the deputy governor said.

Tight food supply, a potential increase in power rates, and the NiƱo weather effects were risks for inflation, which could reach 5 percent “at some point” in the second and third quarters, Guinigundo said.

Inflation held near an eight-month high in January, with consumer prices rising 4.3 percent from a year earlier after a 4.4 percent gain in December.

The central bank raised the inflation forecast for this year to 4.7 percent from 4 percent on Jan. 28, when it kept the benchmark borrowing cost unchanged for a fifth straight meeting.

The limit now on real-estate loans is 20 percent of total bank lending, and that level was “still appropriate” for now, Guinigundo said. Property loans outstanding made up 13 percent of total lending at the moment, he said. Bloomberg

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