DBS sees Bangko Sentral cutting rates next week

The anticipated 25 basis-point cut in policy rates could come as early as next week when the Monetary Board meets on January 19, according to DBS Group.

The financial services firm said in a research note that the Bangko Sentral ng Pilipinas (BSP) might ease its overnight borrowing rate to 4.25 percent or change the reserve requirement on banks as government data showed a continued decline in exports although inflation remains benign.

Earlier this week, the National Statistics Office said export earnings dropped by 19.4 percent year on year in November, faster than the previous month’s 14.6 percent decline and worse than DBS’ forecast of -3.5 percent.

DBS believes that inflation has peaked in October, when “the worse of the (export) declines should be over.”

“However, in terms of a meaningful recovery, we are less optimistic,” the Singapore-based group said. “Electronic exports are still stuck in the doldrums after more than six months.”

DBS said that with signs of slowing global growth, external demand for Philippine goods was likely to remain “anemic” in the next few months.

Earlier this month, BSP Governor Amando M. Tetangco Jr. said the central bank had room for further cut in its policy rates should the global economic growth slow down further.

In the Monetary Board’s meeting on policy rates in December, it was decided that the overnight borrowing rate and overnight lending rate be maintained at 4.5 percent and 6.5 percent, respectively.

The BSP said the decision was based on the assessment that the inflation outlook remained manageable, with within-target headline inflation and well-contained inflation expectations.

“The global growth picture has indeed turned more negative since mid-2011,” Tetangco said. “But if policy makers and the private sector are able to harness these buffers, our country will be able to meet the challenges of 2012 head-on.”

The BSP chief said the government needed to ensure that its spending was targeted at sectors that will lead to greater job generation and infrastructure projects that would solidify the base for sustained growth.