Interest rates expected to remain low in 2012
Interest rates in the country are likely to remain lower on the average in 2012 compared to last year, according to the DBS Group of Singapore.
The financial service provider said in a research note that yields on the 10-year debt paper could average less than 6 percent this year, down from 6.46 percent in 2011.
“It is liquidity conditions that will decide where yields will go in 2012 and we think upward pressure from tighter liquidity is temporary, given the accommodative monetary policy stance of (the) Bangko Sentral ng Pilipinas,” DBS said.
Further, the Singapore-based group noted that Philippine government bonds fell after the government announced last week a budget shortfall of P101.5 billion for December.
“While this was the highest monthly deficit in more than 15 years, debt supply concerns are unlikely to weigh heavily on the government bond market this year,” it said.
“Unless there are sharp capital outflows, good liquidity conditions are likely to allow government bond yields to stay low,” the group added.
Earlier, DBS said the BSP would likely ease its overnight borrowing rate to 4 percent, where it will remain for the rest of the year.
True enough, on March 1, the Monetary Board again cut the BSP overnight borrowing and lending rates by 25 basis points each to reach 4 percent and 6 percent, respectively.
The BSP said the decision was based on its assessment that the inflation outlook remained within the target range, “with well-anchored inflation expectations.”
The BSP cited latest forecasts that continued to indicate that inflation was likely to settle within the lower half of the 3 to 5 percent target range in 2012 and 2013.
According to the central bank, the subdued pace of global economic activity is expected to temper the rise in commodity prices.
For its part, the DBS said that with no signs of recovery in the export sector just yet, the focus of the BSP would likely be on supporting domestic demand.
