BSP keeps overnight rates unchanged
Reuters
First Posted 16:40:00 11/20/2008
Filed Under: Economy and Business and Finance, Economic Indicators, Macro Economics, Government
MANILA, Philippines -- (UPDATE) The Bangko Sentral ng Pilipinas, the country’s central bank, kept interest rates steady on Thursday for a second month in a row, maintaining support for the flagging peso even as other central banks globally cut rates to head off the global financial crisis.
The central bank left its overnight borrowing rate at 6.0 percent and its lending rate at 8.0 percent, saying a cut in bank reserve requirements last week was sufficient to bolster liquidity.
It said the economy was resilient enough to absorb not cutting rates and that it was wary of easing policy because the current volatility in foreign exchange rates could lead to inflationary pressures.
It also said it would want to see at least a recovery in the peso before tracking aggressive rate cuts elsewhere in the world, including by the US Federal Reserve, European Central Bank and the Bank of Korea.
Asked whether a recovery in the peso would give the central bank more leeway in cutting rates, deputy governor Diwa Guinigundo told reporters: "Yes, it is one of the necessary conditions, but not sufficient."
"The more important point is that we have enough resiliency right now to afford not moving the policy rates at this time in the face of continued volatility in the foreign exchange market."
Analysts said a rate cut was inevitable in the future.
"In this region, currency weakness in some of these markets, potentially including the Philippines, have become a bit of a concern for policy makers, and that could be limiting their ability to do further easing," said Ken Akintewe, fund manager at Aberdeen Asset Management in Singapore.
He added: "We've already seen indicative growth come off and I think, to be honest, that's just a start. Eventually their hand is going to be forced into easing."
The peso has dropped more than 3.0 percent in two weeks against the dollar, and is down about 17 percent so far this year as investors have sold off emerging market assets.
Other analysts in the poll said there was scope for a rate cut to head off the global financial storm, especially as inflation is steadily decelerating. The central bank has said inflation could hit single-digits as early as this month.
Analysts cited the need to support economic growth, which is expected to slow this year to a range of 4.1 percent to 4.8 percent from a record 7.2 percent last year.
The reduction in bank reserve requirements would release about P60 billion ($1.2 billion) into the financial system, analysts have said.
Six of 11 analysts polled by Reuters earlier this week had forecast the Philippine central bank would keep overnight rates steady after Friday's 2-percentage-point cut in bank reserve requirements put an estimated P60 billion ($1.2 billion) into the financial system.
Economic growth in the country is expected to slow this year to a range of 4.1 percent to 4.8 percent from a record 7.2 percent last year.
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