BSP seen raising rates by end of ’12
The Bangko Sentral ng Pilipinas is expected to raise its key policy rates toward the end of the year as consumer demand—given rising incomes brought about by a faster pace of economic growth—increases and puts pressure on inflation.
This is according to Moody’s Analytics, which said the BSP might be forced to raise its rates as consumer prices rise at an accelerated pace.
The central bank’s key policy rates, which influence commercial interest rates, stand at record lows of 4 and 6 percent for overnight borrowing and lending, respectively.
Moody’s Analytics, an economic research unit of Moody’s Corp. and sister company of credit watchdog Moody’s Investors Service, said inflation in the Philippines had so far remained benign largely because of the recent decline in global oil prices. Demand for goods and services, however, is rising.
“Global oil prices have come down in recent months, but remain volatile and may resume their climb and drive up supply-side inflation pressure,” Moody’s Analytics said in a report on the Philippines.
“Domestic economic activity has picked up recently, adding to demand-side pressures,” it added.
The economy, measured in terms of gross domestic product, grew by 6.4 percent year on year in the first quarter, beating expectations. This was the second-fastest growth rate in Asia during the period, after China’s 8.1 percent.
The better-than-projected growth in the first three months was attributed to the recovery in export earnings and a strong domestic demand. Consumer demand registered strong growth and was partly attributed to the sustained rise in remittances, which fueled spending of at least 10 percent of Filipino households.
According to the National Statistics Office, consumer prices rose by an average of 3 percent in the first five months of the year, which was the lower end of the BSP’s inflation target of 3 to 5 percent for the whole year.
The BSP slashed its policy rates twice by 25 basis points each, bringing the rates to record lows.
The rate cut was meant to help boost the growth of the economy, which last year slowed down to 3.9 percent from 7.6 percent in the previous year.
Monetary officials believed that lower interest rates could drive demand for loans which, in turn, would boost consumption and investments.
The objective of the rate cuts earlier this year has already been achieved, Moody’s Analytics said, citing the robust GDP growth rate in the first quarter. It said the BSP might eventually shift its focus from helping boost economic growth to helping temper inflation.
