BSP has room to cut rates to boost growth, BPI says

Bangko Sentral ng Pilipinas officials may want to reconsider adopting a “neutral” monetary stance in the second semester, economists from Bank of the Philippine Islands said.

In a commentary dated April 4, Emilio Neri Jr. of the BPI Financial Markets Group research team said that although headline inflation had declined below the full-year target range, markets are seen to continue pricing based on a neutral policy stance for the rest of the year.

“However, policymakers may realize that a 5-percent growth rate for the Philippines is not only unexciting, vis-à-vis our Asean neighbors, but also well below the country’s growth potential,” the research said.

The commentary was issued after last week’s report that March inflation had further decelerated to 2.6 percent—lower than the consensus of 2.8 percent, the February figure of 2.7 percent and well below the BSP’s full-year target of 3-5 percent for second month in a row.

But one factor that may lead the BSP to reconsider its policy stance in the second half, the report said, would be the release of the first quarter 2012 GDP report by end-May, noting that this could provide a fairer picture of the true health of the domestic economy.

“Benign inflation prints for April and May would provide even more impetus to cut policy rates as an assurance against another mediocre growth performance for the Philippines this year,” the report said.

“Besides the manageable inflation path, recent economic reports show continued improvements in the economy, and most analysts who have been very pessimistic about the outlook for the Philippines are now raising their forecasts for full-year growth to closer to 5 percent.”

At the same time, the report said, uncertainties remain about the country’s growth, and doubts remain whether the Philippines can grow to its potential levels.

For one thing, it said, elevated oil prices remained a threat to the Filipino consumer.

“Higher crude prices have led to an increase in local pump prices, public transportation costs, and plans to jack up electricity prices. These [may] force the ordinary Filipino to spend less on consumer durables and other items that may jumpstart the country’s industry sector,” the report said.