BSP signals further cut in policy rates

The Bangko Sentral ng Pilipinas has signaled that it was open to another interest-rate cut should the external environment remain unfavorable to the country’s growth prospects.

In a statement, BSP Governor Amando Tetangco Jr. said the central bank would assess developments in the global economy and as long as inflationary pressures remained within manageable levels, the BSP could afford to implement policies that help boost economic growth.

“The BSP will assess the growth prospects of our major trading partners and their impact on our own domestic growth and inflation dynamics. We [BSP] will continue to ensure that policy settings are appropriately accommodative of non-inflationary growth,” Tetangco told reporters.

Earlier this month, the BSP cut its key policy rates, which influence commercial interest rates, by 25 basis points. The move was aimed at boosting demand for loans, which support spending, and accelerating growth in consumption and investments.

With the rate cut in January, the central bank’s overnight borrowing and lending rates now stand at 4.25 and 6.25 percent, respectively.

The reduction was made given the need to boost the economy following its lackluster performance in 2011.

The economy, measured in terms of gross domestic product, grew 3.7 percent last year, the government announced Monday. This was lower than the official target of 4.5 to 5.5 percent, and was a sharp deceleration from the 7.6 percent registered in 2010.

Last year’s dismal growth was blamed partly on weak demand for Philippine exports as major markets—the United States and the eurozone—suffered from sluggish growth and debt problems.

Some economists said a 25-basis-point rate cut by the BSP might not be enough to help the economy achieve the government’s growth target of 5-6 percent for this year.

Further interest-rate reduction should spur domestic demand and counter the ill-effects of anemic demand from abroad on the country’s growth.

Although the US economy is seen to improve this year, the eurozone is expected to continue suffering from its debt problems.

Tetangco earlier said that in cases where demand from foreign buyers of Philippine-made goods remained anemic, domestic demand should be boosted.