Increased Financial Intermediation in the Philippines: Some Implications for Monetary Policy
20 Pages Posted: 24 Nov 2015
Date Written: November 2015
Abstract
This paper examines how the monetary transmission mechanism is affected by changes in the pattern of financial intermediation in the Philippines. By estimating the nature of monetary policy pass-through and the influence of monetary policy changes on outstanding bank credit, this study finds that, in general, monetary policy transmission has been stronger and faster, especially during the past decade. The estimates also indicate that banks have shifted to the Special Deposit Account rate as the basis for pricing loans, instead of the overnight policy rate. Meanwhile, the results of a rolling regression show that pass-through and speed of adjustment for the longer-term time deposit rate, Treasury bill rates and Treasury bond rates became stronger prior to the global financial crisis in 2008 and in 2012 following surges in capital flows. However, there was a general decline in the immediate passthrough for savings deposit and bank lending rates after 2012. When inflation and growth are considered, policy rate changes continue to be a significant driver of overall bank credit. These findings underscore the relative importance of the changing pattern of financial intermediation and the close interaction between monetary and financial stability.
Full publication: What Do New Forms of Finance Mean for EM Central Banks?
Keywords: financial intermediation, monetary policy pass-through, Philippines
JEL Classification: E52, E58, G15
Suggested Citation: Suggested Citation