BSP rates to remain unchanged till end-2011
MANILA, Philippines—Credit Suisse expects policy rates in the Philippines to stay where they are through 2011 and anticipates just a one 25-basis-point increase next year, agreeing that concerns on economic growth should take over worries about inflation.
In a paper, the international investment bank said the Bangko Sentral ng Pilipinas has recognized the easing of inflation pressures since the start of the year and the need to avoid a further slowdown of economic growth.
“We do not see inflation moving up to worryingly high levels and so for that reason, ongoing global growth worries and the historically unhurried stance of the BSP, we’ve only got one 25 bps hike built in for 2012,” Devika Mehndiratta, Credit Suisse vice president for India and Southeast Asia economics, said in the paper.
In its meeting last Thursday, the policy-setting Monetary Board of the BSP decided to keep the overnight borrowing and lending rates at 4.5 percent and 6.5 percent, respectively.
In making the decision, the BSP said there was no urgency for another rate increase given that inflation pressures have subsided somewhat and that an adjustment could cause a drag on the economy, which already posted a slower-than-expected growth of 4 percent in the first half. The government is targeting a GDP expansion of 5 to 6 percent for 2011.
So far this year, however, the BSP has raised policy rates twice (in March and May) by a total of 50 basis points. It has also raised the reserve requirement on banks by 2 percentage points to 21 percent.
Both moves were meant to temper demand for and the supply of loans and, in the process, slow down consumption and inflation.
The BSP said the moves were so far enough to help inflation settle well within the target ceiling this year and next.
But Credit Suisse said the central bank might be forced to increase rates by 25 basis points in early 2012 to counter the inflationary pressures to be caused by a pending increase in transport fares, particularly those related to the removal of subsidies for the MRT and the imposition of the 12-percent value-added tax on toll roads.
“We think inflation is likely to edge up a bit, but not worryingly so,” Credit Suisse said, adding that a 25-basis-point increase next year would be enough to ensure a benign inflation for 2012.
The government is targeting inflation to settle within 3 to 5 percent for this year and 2012. Latest data from the National Statistics Office showed that inflation averaged 4.3 percent from January to August this year.
The BSP said its latest estimates pointed to an inflation average of 4.46 percent this year and 3.4 percent in 2012.
