Interest rates seen to stay low for now

CENTRAL banks in Asia may hold off from hiking rates for the rest of the year to allow currencies to weaken against the surging US dollar, to the benefit of industries that earn dollars.

Think tank Capital Economics in a new report said the wave of rate cuts in the region was nearing its end. Countries that have stayed on the sidelines, particularly the Philippines, may stand pat for the rest of 2015 due to low inflation and slow growth.

“The window for policy loosening is starting to close. Most importantly, downward pressure on consumer price inflation from lower oil prices has bottomed out,” the firm said.

“And even if prices remain flat, oil price inflation is likely to rebound strongly by the end of the year, which in turn will put significant upward pressure on regional inflation,” it said.

Last week, the Bangko Sentral ng Pilipinas (BSP) kept its benchmark interest rates steady, noting that the Philippine economy had no need for an extra boost from monetary authorities.

The outlook for inflation for 2015 and 2016, however, were moved up slightly, reflecting the prospect of rising fuel prices and dryer weather putting pressure on the country’s food and electricity supply.

BSP Deputy Governor Diwa C. Guinigundo likewise said the Philippine economy was strong enough to weather the effects of a weaker peso.