Asia to see more interest rate cuts

Debt watcher Fitch Ratings expects interest rates across emerging Asia, including the Philippines, to fall further as inflation remains low due to cheap oil.

“There remains room for interest rates to fall further, given positive real interest rates. Fitch believes the quality of policy management is likely to come into focus for sovereigns in this region when the US Federal Reserve increases its interest rates,” it said.

Citing a recent report, Fitch said “real interest rates remain positive for most of emerging Asia despite easy monetary policies across most of the region,” which it attributed  to “subdued underlying inflation stemming from low oil prices.”

“Most central banks in the region have either eased monetary policy or kept rates on hold since early 2015 to support growth in a less favorable external environment. While the Philippines and Malaysia have stayed on hold, India and Indonesia have cut policy rates since early 2015,” it said.

“However, data suggest that the impact on domestic demand from higher lending activity is not as strong since the rate of credit expansion on average has remained unchanged over this period for most countries,” Fitch added.

In its meeting on monetary policy on May 12, the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board kept key policy rates steady as the inflation outlook remained favorable.

As of April, year-to-date inflation stood at 1.1 percent, below the government’s full-year target of 2-4 percent.

“The Monetary Board’s decision is based on its assessment of a continuing manageable inflation environment,” BSP Governor Amando M. Tetangco Jr. said.

The BSP’s policy-making body had also maintained its inflation forecasts of 2.1 percent for 2016 and 3.1 percent for 2017.

Tetangco said risks to the inflation outlook were still tilted to the downside, with downward price pressures coming from the “slower-than-expected” global economy alongside potential second-round effects from cheap oil.