BSP seen keeping rates unchanged

Further cuts may hurt domestic economy

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The Bangko Sentral ng Pilipinas is widely expected to keep policy rates unchanged on Thursday, Dec. 12, 2012, considering that further rate cuts may not be good for the domestic economy, the DBS Group said.

The Bangko Sentral ng Pilipinas is widely expected to keep policy rates unchanged on Thursday considering that further rate cuts may not be good for the domestic economy, according to the DBS Group.

Policy interest rates are up on the Monetary Board’s agenda in its meeting this afternoon.

DBS said in a new research note that in the immediate term, the central bank was less concerned about inflation than about the situation of capital inflows which—in the first place—was what prompted a 25-basis-point reduction in the monetary agency’s policy rates last October.

That most recent move brought the overnight borrowing rate to a record low of 3.5 percent and the overnight lending rate to 5.5 percent. Since the start of the year, monetary authorities have cut each rate by a total of 100 basis points.

“Further rate cuts may risk domestic macroeconomic stability further down the line,” DBS said. “With headline inflation still staying benign, BSP can keep rates accommodative, but further rate cuts appear unlikely.”

The Singapore-based group noted that the BSP has considered several new measures to help moderate capital inflows and temper the peso’s strength.

“These include curbs on NDFs (or non-deliverable forwards) and setting a minimum holding period for securities,” the bank said. NDFs are popular among investors seeking to mitigate possible losses on foreign currencies that are thinly traded or are not convertible to other currencies.

DBS said that no policy rate changes were also expected over the next four quarters.

The bank said that a rate increase of 25 basis points, instead of a reduction, could be seen in the fourth quarter of 2013. This is a revision of a previous forecast of such move in the third quarter next year.

DBS said that the series of policy rate cuts this year was possible because inflation stayed very low. Inflation figures have been easing progressively in the past few months, settling at 2.8 percent year on year in November. This put the January-November average to 3.2 percent, near the lower end of the central bank’s target range of 3 to 5 percent, data from the National Statistics Office showed.

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  • mamer2

    Keeping the rates unchanged will just give more profits to these “Bully BANKS”…, that charges astronomical rates upon the banking public.
    Just note the enormous profits these Banks gain, year after year.
    Banks and Fuel-Oil Companies are giving the SMC (Beer) a run for the top-earner for the year.

  • Hayek_sa_Maynila

    “Further rate cuts may risk domestic macroeconomic stability further down the line” -DBS

    But it may actually be more dangerous if BSP does not cut…Who will stop PHL companies and local financial institutions from borrowing abroad where interest rates are extremely low and Central Banks are dropping cash from their helicopters while the BSP signals a one-way bet on the peso? This will lead to currency mismatched balance sheets again just like the 1980s and 1990s.

    Why is it that Singapore is limiting the movements of USD/SGD but DBS is telling us we should allow the peso to appreciate faster by encouraging the BSP not to cut rates despite their income per capita 20 times bigger than ours?….Carry trade! All they want is to make easy money from carry trade!

    All these foreigners telling us USD/PHP will go to 37 are not forecasting, they are talking up the peso so that they can get their free checks from the ever so obvious interest rate arbitrage…

    If we remain gullible and believe whatever we are told, we should not be surprised at all if the PHL returns to 1997 and suffer another lost decade while everybody else overtakes us or leaves us farther behind.

    We don’t mind if they forecast interest rates falling to 1.0% or the stock market rising to 7,000 but to make self-fulfilling forecasts on the peso is so insensitive to all Filipino workers, whether they work abroad or in the PHL.

    Uto Uto ang labas natin nyan pag nagkataon

  • Luthmar

    DBS states that “series of policy rate cuts this year was possible because inflation rate was
    very low.”  And that “inflation rate has been easing progressively…………”   Hello BSP, have you 
    people been to the markets, dept. stores ect. to shop?  Everything is so expensive.  How can you say that “inflation has been easing progressively.”  Inflation rate, for us consumers, have been rising progressively.   Please check your figures.

    • http://pulse.yahoo.com/_JEMNLLYAP5EA7SM3A6QUOGV62Q Chris

      Are you an economist?

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