When central banks lower interest rates, many people assume it’s great news. Lower borrowing costs mean cheaper loans, higher stock prices, and more spending power, right? Not always.
“While lower interest rates can stimulate the economy, they also come with risks—especially for savers and long-term investors,” Henry Ong, a Registered Financial Planner, told FinancialAdviser.ph
Before celebrating a rate cut, here’s what you need to know about its real impact on your money.
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Cheap Loans? Yes. But Inflation Can Follow
One of the biggest benefits of lower interest rates is that borrowing becomes more affordable.
Mortgage payments drop.
Car loans become cheaper.
Businesses can expand with lower financing costs.
Sounds good? Yes, but there’s a catch.
When borrowing becomes too easy, consumer spending can surge, driving prices higher. If inflation rises too fast, your purchasing power weakens—meaning your salary buys less over time.
“People need to be careful. While lower interest rates make borrowing attractive, they can also fuel inflation,” says Ong.
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Your Savings Might Take a Hit
If you rely on savings accounts or time deposits for income, rate cuts can hurt you. Banks lower deposit rates when interest rates fall, meaning you earn less on your savings.
“Many Filipinos keep their money in savings accounts, but with lower rates, they’re actually losing value due to inflation,” Ong explains.
To counter this, consider moving excess savings into higher-yield investments, such as bonds, dividend stocks, or money market funds.
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Stock Market Gains Aren’t Always Sustainable
Interest rate cuts often boost stock prices because companies can borrow cheaply, and investors move their money from low-yield savings into equities.
However, if rate cuts signal economic weakness, the stock market can become unstable. Investors might push prices up too fast, creating short-term gains that don’t last.
Ong warns, “While stock markets tend to rise after a rate cut, investors should be cautious. If the economy is slowing, corporate earnings could decline, leading to market volatility.”
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The Peso Could Weaken
Lower interest rates can make the Philippine peso less attractive to foreign investors, leading to depreciation. A weaker peso means higher prices for imported goods, which can fuel inflation.
For those with foreign currency investments or businesses that rely on imports, rate cuts could lead to unexpected costs.
The Bottom Line
Interest rate cuts aren’t always a win. While they make borrowing cheaper and can boost the stock market, they also reduce savings returns, fuel inflation, and weaken the currency.
For investors and savers, the key is to stay diversified, keep an eye on inflation, and adjust financial strategies accordingly. Not all rate cuts are good news—so understanding their impact can help you make smarter money decisions.
