BSP seen maintaining policy rates

A worse-than-expected slowdown in global demand for Philippine export products may temper domestic growth and prompt monetary authorities to keep policy rates unchanged until the second quarter of 2013, according to DBS Group.

The Singapore-based financial service provider said in a research note that a harmless inflation situation also contributed to its decision to revise its earlier projection that policy rates would be maintained for the rest of the year and would be tightened by the first quarter of next year.

With the drop in oil prices in the previous weeks, DBS Group lowered its Philippine inflation forecast for 2012 to 3.5 percent from 4 percent early this month.

“Although this figure is likely to tick up as base effects turn unfavorable, inflation for the whole year will be comfortably within the central bank’s target range of 3 percent to 5 percent,” DBS said.

Also, the company said risk to the growth of gross domestic product had been building up in the light of the worsening fiscal crisis in the eurozone.

Earlier this week, DBS said Philippine GDP might have grown by 4.3 percent in the first quarter, given the improvements in exports, government expenditures and inflows of remittances.

It, however, said that the outlook for the remaining quarters “has turned decidedly cloudier.”

The group said the surge in electronics demand in the early months of this year could be attributed to restocking in the market and it was not clear whether final demand would pick up in the second semester.

“As such, although we expect a strong first-quarter GDP number, downside risks to economic growth still dominate,” DBS said.