Bangko Sentral hints at rate cut in 2012

POSSIBLE BUT The Bangko Sentral ng Pilipinas may consider cutting policy rates in 2012 if growth-dampening factors abroad persist and further harm the local economy.

The Bangko Sentral ng Pilipinas said it might consider cutting key policy rates next year as growth-dampening factors from abroad were expected to persist and harm the domestic economy further if not addressed with the correct monetary policies.

Since the second half of this year, the BSP has kept its policy rates steady in the belief that these were still low enough to help boost consumer spending and investments and thus support overall economic growth.

However, BSP Governor Amando Tetangco Jr. said there was already room to raise interest rates in 2012 and the central bank might actually do so if the current unfavorable performance of the global economy would extend through next year.

“Based on what we would see in our monitoring, there is always the possibility that we will consider easing in 2012,” Tetangco said.

The current BSP policy rates, which influence commercial interest rates, stand at 4.5 percent for overnight borrowing and 6.5 for overnight lending.

At the start of 2011, the rates were at 4 and 6 percent. The BSP raised the rates twice in the first half by a total of 50 basis points amid rising inflationary pressures, which eventually eased.

Lowering the policy rates is seen to help encourage consumers and businesses to borrow from banks and other credit institutions. Monetary officials said the funds obtained through loans could spur spending and, in turn, the economy as a whole.

So far this year, credit has been growing nearly 20 percent, but economists said there could be room to further increase bank lending and counter the ill-effects of the unfavorable global economic conditions.

The poor outlook for the global economy is anchored on the lingering debt crisis in the eurozone and the slow recovery of the US economy from its recession in 2009.

The crisis in the West is partly blamed for the slowdown in the performance of the Philippines and other emerging markets this year. The emerging markets have the US and eurozone economies as two of the biggest export markets.

In the case of the Philippines, GDP grew by a mere 3.6 percent in the first three quarters of this year, prompting government officials to admit that the full-year target might no longer be attained.

The government was expecting a full-year growth target of between 4.5 and 5.5 percent.