Prime lending rate continues to drift downwards

•  Signals further relief to borrowers, both current and prospective

The prime lending rate continued on its downward path through last week, coming further down from its below 12.0 percent level reached at the beginning of the month, signalling further easing in other market interest rates, providing relief to both the current and future borrowers, who remained on the sidelines during the last two years, due to sky-high rates.
The weekly data from the Central Bank showed that the average prime lending rate, the average rate of the loans from the commercial banks to their most creditworthy clients, has come off by further nine basis points to 11.78 percent. This brings the total decline in the benchmark rate to 26 basis points so far during 2024. 
The prime rate stood at 27.54 percent a year earlier and the current rate is the lowest since about 21 months, when the rates started soaring from April 2022, in response to the bumper policy rate hike in that month, to arrest the runaway inflation at the time.

Many are watching the direction and how fast the prime rate is responding to the previous policy rate cuts and other monetary policy easing measures by the Central Bank, as it functions as the market lending rate closely tied to the key policy rates.
Therefore, its direction will determine how the rest of the rates in the economy, such as from mortgages, consumer loans, leases to credit cards, will get repriced, as it will lead the rest of the market lending rates.  
Meanwhile, the other benchmarks such as the average weighted new lending rate, which provides a proxy for loans for the small and medium-sized businesses, were still at 15.17 percent by the end of November last year, according to the latest data available.

While this was still somewhat a restrictive level for the businesses to borrow and make goods, these rates were at 26.04 percent a year earlier and may have further eased during the last two months, although the data isn’t available yet.The banks also remain ready to restart their lending back to these businesses, after nearly two years of near absence of approving facilities, due to the heightened risks to these segments from the sky-high rates and the collapse of the economy, which sent shock waves through their businesses.
The market largely expected the Central Bank to leave its key policy rates unchanged at its first Monetary Policy meeting scheduled for this year yesterday, as it met to determine if the previous rate cuts are sufficiently being transmitted through the economy via easing financial conditions. Assigning an 80 percent probability for the Central Bank to stay pat this week, First Capital Research said, given the recovery in the economy seen at present from the second half of last year, improvement seen in market liquidity, continuous growth in private credit and risk of cost push inflationary pressures, among others, as to why it believes another rate cut is not imminent.  
In November, when the Central Bank delivered its final 100-basis-point cut in policy rates, the dual policy rates were at 9.0 percent and 10.0 percent, respectively and told it would want to wait for some time before cutting further, to allow the market to adjust the 
lending rates lower.