The BSP was able to reduce its policy rates by this much because the domestic inflation outlook continues to be manageable. The easy monetary policy encouraged banks to also reduce their lending rates, thereby supporting domestic investment and consumption. The Philippine banking system remained sound and stable in 2012, allowing it to effectively intermediate funds to productive uses even during times of global uncertainty.
Concerns about unsustainable public finances due to high deficits and debts, and unsustainable social security systems, may lead consumers to save more, in anticipation of future tax increases. Sound public finance and sustainable non inflationary growth are mutually reinforcing and are creating a virtuous circle : growth in turn reinforces public finance.