The Bangko Sentral ng Pilipinas is expected to keep its overnight borrowing rate unchanged at 4 percent during the policy rate-setting Thursday and to maintain a neutral stance for the rest of the year.
A policy leeway for possible moves to stimulate economic growth, which monetary authorities enjoy, may cushion the downward pressure that weak exports will have on growth this year, according to DBS Group.
The financial services firm said in a research note that exports were expected to have recovered in April from a decline in the previous month, although at only 0.4 percent year on year.
The Singapore-based group said the outlook on Philippine exports for the remainder of the year was “decidedly cloudy” and that it did not expect that an electronics-led surge in exports could be sustained.
DBS attributed the surge in exports in January and February mainly to short-term inventory restocking after an extended period of drawdown in 2011.
“Going into the second semester, worries about a hard landing in China, a slowdown in the United States and a worsening of the eurozone crisis dominate,” DBS said. “Moreover, trade and (sales) data across the region have also softened considerably in recent months.”
The company reiterated that a pickup in external demand for local goods in the second semester “does not appear likely.”
Even then, the forecast export recovery in April bolstered DBS’ expectations that the BSP would not move policy rates for the rest of the year.
“As such, the boost to headline GDP growth from exports in the first quarter is not likely to be repeated and we expect headline growth to trend lower accordingly,” DBS said.
“In the subsequent quarters, domestic demand will be critical toward cushioning against a period of weak external demand and it is encouraging that the authorities have both fiscal and monetary room to embark on more stimuli if needed,” it added.
Investment bank Bank of America-Merrill Lynch also expects the inflation-targeting BSP to keep its overnight borrowing rate unchanged at 4 percent during the policy rate-setting Thursday and to maintain a neutral stance for the rest of the year.