DURING a Senate Finance Committee hearing late last month, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said increasing national savings was the long-term structural solution to strengthening the peso and improving the country’s current-account position.
He also said high spending habits relative to national income contributed to a low saving rate.
“As much as possible, I hope our savings increase. That is the long-term solution,” Remolona said in Filipino.
“It’s a bit difficult to say this... but we tend to be showy. It’s what you call a culture of consumption,” he added.
The central bank chief explained that insufficient foreign currency stays in the domestic system when consumption patterns lean heavily toward spending rather than accumulating national savings and capital reserves.
His remarks sparked an immediate pushback from labor groups, who argued — and convincingly so — that ordinary workers spend their income on basic necessities, such as food, electricity, transportation and medicine, rather than discretionary luxuries.
The low savings rate, they added, is a result of low wages, not a spending culture.
“If we want workers to be able to save, we should first give them wages that leave something after they have paid for their living expenses,” the Nagkaisa labor coalition said in Filipino.
The BSP governor’s statement seemed particularly tone-deaf as a handful of private companies have managed to scuttle a modest government-mandated wage hike by going to court.
We understand, of course, that Remolona was focused on macroeconomic fundamentals, linking the national savings rate directly to the current-account deficit and the saving-investment gap. From a central bank framework, the savings rate reflects the portion of gross national income (GNI) that is not consumed by households or the government, rather than simply money sitting in traditional bank accounts.
Central banks, after all, look at total national savings — which includes corporate retained earnings, government fiscal balances, and capital market investments — where retail bank deposits are only one component.
But by focusing on the forest and ignoring the trees, so to speak, government officials like Remolona tend to overlook the real world occupied by millions of wage earners, who have very little to put away for a rainy day and even less incentive to save.
Low retail banking interest rates unquestionably depress individual savings behavior.
When retail bank interest rates fall below the rate of inflation — yielding a negative real interest rate — depositors are penalized for holding money in cash or basic savings accounts.
And traditional bank savings rates in the Philippines are punitive. Traditional banks pay a measly 0.125 percent to 0.25 percent interest a year (which drops further after a 20-percent withholding tax on interest earnings). With headline inflation sitting at 3 percent to 6 percent, keeping money in a standard savings account means losing purchasing power every single day.
Can we blame consumers for concluding that spending cash today on tangible goods or immediate household needs preserves value better than watching its purchasing power erode in a bank account?
When a central bank raises its benchmark policy rate to curb spending, the intended monetary transmission mechanism relies on commercial banks passing higher yields to everyday depositors. But major universal banks in the Philippines don’t.
They quickly raise interest rates on business loans, credit cards and mortgages, but keep retail deposit rates pegged near zero.
The reason is simple: in an oligopoly, there is no reason to pay depositors more. After all, big commercial banks hold near-monopoly control over traditional payroll and payment networks. Moreover, traditional banks are flooded with low-cost “sticky” deposits (checking and payroll accounts). Because they already have more cash than they know what to do with, they have zero incentive to compete for savings by raising interest rates.
This is not a problem for wealthier individuals or corporations, who can shift to higher-yielding instruments or investments. But ordinary wage earners do not have that luxury.
This situation breaks the incentive loop: the central bank’s policy tightening makes borrowing expensive, but it fails to reward retail depositors for deferring consumption.
Framing low national savings strictly as a result of “consumption culture” overlooks the rational economic behavior of consumers. When formal banking offers negative real returns, spending or seeking alternative assets is a pragmatic financial response, not just a cultural preference.
From an everyday consumer’s perspective, low interest rates absolutely suppress traditional bank savings. Central bank leaders focus on broad structural metrics — such as national debt, trade balance, and capital markets — but everyday depositors face the daily reality that standard savings accounts actively erode their wealth.
