BSP likely to keep rates steady for rest of 2011, says UBS

Philippine monetary authorities are expected to allow the peso to weaken or resist its strengthening as a way to absorb macroeconomic shocks from advanced economies, according to UBS Securities.

The company said in a new research note that the Bangko Sentral ng Pilipinas, in harmony with other monetary policymakers in Southeast Asia, would take such steps to shield the economic resiliency that the region showed in 2010 from threats of fallout from troubled regions in the world.

UBS also said Philippines policy rates would no longer change for the rest of the year, leaving the BSP’s overnight borrowing rate at a low 4.5 percent.

“We expect Asean [Association of Southeast Asian Nations] policymakers to use currency markets to absorb upcoming macroeconomic shocks,” UBS economist Edward Teather said.

For Asean economies, including the Philippines, current account balances that remain positive mean upward pressure on currencies, particularly when capital does not flow out, Teather said.

A country’s current account refers to the balance of the inflow and outflow of goods, services, and other funds such as income, donations and debt payments.