BSP may keep, or even ease, policy rates

MONETARY authorities may keep interest rates on hold until the end of the year or even ease policy settings to provide a needed boost for the domestic economy as weak government spending threatens to stunt growth.

Banks this week said recent economic indicators pointed to slower growth in the first quarter of the year, potentially forcing the central bank to keep an accommodative stance.

“A shortfall in the first quarter government spending imparts downside risk to the … consensus forecast for gross domestic product (GDP) growth,” ING Bank said in a note to clients.

The government reported spending growth of 6.6 percent in January to March this year. Growth should have been 21 percent had authorities spent their budgets as planned.

As a result, the budget deficit, which serves as an indicator for fiscal spending, stood at P33.4 billion versus the projected P98 billion.

Market Call, a monthly report of First Metro Investments, cited the modest decline in merchandise exports in February as a potential source of weakness for the economy. Goods shipped by the country fell by 3.1 percent in February amid weak demand from overseas.

First Metro said economic activity could gain support from stable prices. Headline inflation remained soft, hitting 2.2 percent in April or closer to the lower end of the government’s 2- to 4-percent target.

At its last rate-setting meeting, the Bangko Sentral ng Pilipinas kept monetary policies steady. The central bank left its benchmark overnight borrowing and lending rates at 4 and 6 percent, respectively.

The central bank’s main goal is to protect consumers’ purchasing power by keeping prices stable. Officials also keep an eye on the state of the economy, making sure that policy settings don’t stifle growth.

Analysts polled by the Inquirer this week said economic growth would remain above 6 percent, but would be short of the state’s goal of an expansion of as much as 8 percent. The BSP, for its part, “shares” the government’s target, Governor Amando M. Tetangco Jr. said this month.