Bangko Sentral seen cutting rates

The Bangko Sentral ng Pilipinas might reduce again its overnight borrowing rate by 25 basis points on Thursday to preempt a further weakness in exports, according to DBS Group.

The financial service provider said in a research note “the odds between a cut and no change will be close, but a slackening is more likely to bring the [rate] to 3.5 percent.”

“The country is still enjoying the sweet spot of strong growth and low inflation,” DBS said. “With the latest headline inflation print of 3.6 percent year on year in September, there are no immediate risks of price pressures.”

The Singapore-based bank added that for the rest of this year, inflation is likely to stay below 4 percent, “implying that monetary policy can stay accommodative.”

Regarding trade with the rest of the world, DBS said the drop in export last August “is disconcerting” considering that it predicted a double-digit rise.

Documents from the National Statistics Office showed that the value of exports in August fell 9 percent year on year and 20 percent from the previous month.

“To be sure, export numbers had been propped up by non-electronics manufactures,” DBS said. “However, this component suffered a 30-percent month-on-month decline in August, led by a fall in machinery and transport equipment exports.”

As for electronics, the country’s traditional top dollar earner, DBS observed that it continued to be stable in terms of value.

“A rate cut this week would be preemptive of further weakness in the export sector in the coming months,” the bank said.

Last week, BSP Governor Amando Tetangco Jr. hinted at concern about an “excessively strong peso” even as the country’s surplus in its balance of payments (BOP) rose 4.4 percent year on year to $751 million in September.

“We are mindful of developments both global and domestic, and we are watchful of market conduct,” Tetangco said. “We will not tolerate excesses in exchange rate movements and will not hesitate to consider other tools in our policy tool kit.”