MANILA, Philippines - Local banks have slashed their lending rates in 2009 by 2.1% in response to rate cuts during the year by the Bangko Sentral ng Pilipinas (BSP).

BSP Deputy Governor Diwa Guinigundo said banks have reduced their consumer and corporate lending rates by an average of 210 basis points since December last year.

This means bank loans now have an average annual interest rate of 7.2% from 9.3% in December last year.

He said this was in reaction to BSP's series of policy rate cuts from December 2008 to July 2009 that slashed overnight borrowing and lending rates by 200 basis points.

This brought down the BSP's overnight borrowing and lending rates to 4% and 6%, respectively. These rates, considered record lows, have been on hold since August this year.

Rate cuts are monetary tools of the central bank to influence banks to reduce their own lending rates, thus encourage borrowings from consumers and businesses, and boost overall growth of the economy.

"Banks have been more accommodative both to the corporate and household [borrowers]. Banks are convinced that it pays to lend at this point," Guinigundo told reporters.

The BSP credits the low-interest rate environment for helping the economy avoid a recession this year.

The economy, measured in terms of gross domestic product, grew by 0.7% in the first three quarters of the year. The government expects the economy to grow by 0.8% for the entire year, the low-end of the original target of between 0.8% and 1.8%.