DBS Group expects BSP to ease monetary policy due to sluggish economy

MANILA, Philippines—The Bangko Sentral ng Pilipinas is “showing readiness” to ease monetary policy in the coming months amid weakening push for growth from international trade, according to the DBS Group.

In particular, the Singapore-based group noted the BSP’s move earlier this month to downscale its 2012 inflation forecast to 3 percent from 3.4 percent.

The financial service group said this was a sign that BSP might, “if needed,” follow the Indonesian central bank’s example, having earlier this month cut its policy rate by 25 basis points to a record low 6.5 percent.

Indonesian monetary authorities cited expectations of a weaker global economy that would affect the country’s exports much the same as with the Philippines.

For its part, the BSP last week maintained its overnight borrowing rate at 4.5 percent.

“There is limited impetus for import growth in the near term,” DBS said. “Weak global demand for electronics has translated into negative export growth since May.”

The group said there have not been signs of a pickup in global demand for semiconductor and “as such, raw material imports – the bulk of which would be needed for the manufacturing of electronics goods – should continue to languish.”

“With base effects weighing, import growth may fall into negative territory for the rest of the year,” it added.

Data from the National Statistics Office show that as of July, import revenues grew by 6.6 percent year on year to about $5 billion that month.

But DBS is expecting a 1.4-percent contraction in August, adding that full-year import growth is expected to be around 6 percent.

“The external sector is not going to be able to provide a lift to the Philippine economy in the short term,” DBS said. “Therefore, it was not surprising that the central bank left the benchmark policy rate unchanged.”