The experiences of foreign economies suggest that the relationship between debt and interest rates is complex and likely non-linear, with the influence of greater debt on interest rates rising as the debt-to-GDP ratio reaches a trajectory at which investors have concerns about its sustainability.
However, we expect the impact to be manageable due to the banking system’s sound risk management systems and financial strength built over decades of strategic reforms implemented by the BSP. Another factor is the relatively low leverage of the biggest recipients of the banks’ loans – the corporate borrowers.