After slashing key interest rates this year four times, for a total of 100 basis points this year, economists have a mixed view on whether the Bangko Sentral ng Pilipinas is done with its monetary easing cycle especially through 2013.
With global demand likely to remain weak, more policy easing may be sanctioned by the BSP next year, global research firm Capital Economics said. Barclays said with the risks to global growth still on the downside, another interest rate cut may be likely, especially given continued capital inflows.
Credit Suisse, on the other hand, thinks that scope for the BSP’s monetary easing was narrowing and that the local monetary authority was gradually moving toward using non-policy rate measures to handle inflows.
HSBC said given that risks to inflation remained in the first quarter of 2013 due to an unfavorable base effect and rising power prices, the BSP would likely hold rates steady at the next meeting. “If anything rates will again rise next year,” said HSBC economist Trinh Nguyen.
Capital Economics, Barclays, Credit Suisse and HSBC issued their research reports on Thursday shortly after the BSP announced a widely expected 25-basis-point interest rate cut that brought the inflation-targeting central bank’s overnight borrowing rate to a new record-low 3.5 percent.
In projecting a continuation of the monetary easing or dovish bias, Capital Economics believed that inflationary pressures in the Philippines were currently very low and would remain weak.
“A combination of weaker growth in the Philippines and falling global commodity prices means price pressures are likely to remain subdued in the coming months,” it said.
The research firm said last week’s cut should boost investment and consumption, which would compensate for the weakness of the export sector. This should also ease upward pressure on the peso.
“On balance, we expect growth to slow in the coming quarters. However, provided remittances continue to hold up as we expect, GDP [gross domestic product] is likely to expand by around 4-5 percent over the next couple of years,” Capital Economics said.
“The central bank has its next meeting in December, when we expect rates will be left unchanged as the BSP takes time to monitor the impact of today’s cut. However, if global growth remains as weak as we expect over the next year and the crisis in the eurozone continues to intensify, further loosening is likely in 2013,” Capital Economics said.