BSP can still afford to keep rates amid glowing economy–think tank

THE BANGKO Sentral ng Pilipinas (BSP) is expected to keep policy rates steady on Thursday amid better economic fundamentals and steady inflation figures, Moody’s Analytics said.

In a note on Wednesday, the think tank said the central bank could afford to resist the temptation to cut rates, given the country’s growth prospects. Moody’s Analytics also said there seems to be little need for a hike, thanks to low inflation.

This comes ahead of the policy-making Monetary Board’s meeting on Thursday. Overnight borrowing and lending rates have been kept at 4 and 6 percent, respectively, for more than a year.

“The outlook has improved with public spending programs getting under way,” Moody’s Analytics said. “The Philippines also has its booming and relatively stable services sector, specifically the strong performing business process outsourcing (BPO) industry to fall back on,” it added.

Moody’s Analytics is an affiliate of international debt watcher, Moody’s Investor Service.

The BSP’s main mandate is to protect consumers’ purchasing power by keeping prices stable. This is done by influencing domestic demand through interest rate adjustments and the management of the country’s money supply.

In August, inflation reached a record low of 0.6 percent, and the full-year average is seen dipping below the official target range of 2 to 4 percent, coming from last year’s 4.1 percent.

A rate cut would help spur economic demand, but may lead to excess demand that could stoke inflation. Hiking rates help keep prices in check, but at the risk of smothering economic activity.

For now, Moody’s Analytics said Philippine economic growth was secure, thanks largely to the business process outsourcing sector.

“BPO has boomed in the Philippines, particularly related to call center services, tapping into the Philippines’ large young and well-educated population,” Moody’s Analytics said.