Rates seen to inch up in 2013 as prices rise

MANILA, Philippines—After last year’s monetary easing cycle, the Bangko Sentral ng Pilipinas may jack up its key interest rates this year by 25 basis points to curb consumer price pressures as the economy moves toward a higher growth path, said a research note published by Metropolitan Bank & Trust Co.

Because of the stellar growth in the first three quarters of 2012 and given the still rosy prospects, Metrobank research sees the country’s full-year 2012 gross domestic product growth at 6.6 percent while for 2013, growth was seen at 6 percent.

“Inflation is seen to slightly inch up moving forward, albeit still manageable, amid some expected tightness in the supply of some domestic commodity sectors. The stronger peso and stable global commodity prices will, however, temper any significant increases in consumer prices,” the bank research said.

Metrobank research sees the average full-year inflation rate for 2013 to come in at 3.6 percent versus last year’s average of 3.2 percent.

This year, the bank sees interest rates remaining subdued on rosy economic prospects, high market liquidity, expectations of credit rating upgrade and manageable inflation.

For the BSP’s policy rates, the bank research sees a 25 basis point hike in policy rates this year “on probable demand-pull inflation effects,” referring to a situation when demand for consumer goods or services exceeds supply, thereby pushing prices higher.

The BSP reduced its key interest rates in 2012 by a total of 100 basis points to record-low levels, bringing the overnight borrowing rate to 3.5 percent and the overnight lending rate to 5.5 percent.

“The Philippine economy seems to be on the road to a higher growth trajectory, surprising markets with remarkable expansions in the first three quarters of the year. The economy is thus seen to cap 2012 way stronger than what was previously expected,” the report said.

On the demand side, the research said household consumption would likely remain as the growth driver.

“Consumer spending will still be supported by the sustained inflow of remittances and the still well-anchored inflation expectations. Government spending will also support GDP growth amid the expected boost from midterm election spending,” it said.