Fed move gives more room for monetary policy- BSP

The Bangko Sentral ng Pilipinas (BSP) said Thursday it now has more flexibility to ease benchmark interest rates after the US Federal Reserve held its policy rates steady for the third month in a row. On Wednesday, the Federal Reserve held its key interest rate steady at 5.25 percent, noting the economy had slowed but saying growth would probably pick up in the months ahead. "The Fed decision keeps the pressure down on interest rate differentials. This provides more elbow room for monetary policy," BSP governor Amando Tetangco said in a text message to reporters. Monetary officials had kept the Philippines' overnight interest rates steady in a meeting on August 10 to encourage bank lending activities and help spur the economy. The local central bank's overnight interest rates have been unchanged at 7.50 percent for borrowing, and 9.75 percent for lending, since a 25-basis point hike in October last year. Rate cut Economists have said that the BSP should lower its overnight interest rates given a tame inflation to further boost economic growth. In a previous GMANews.TV poll, two out of four economists said the BSP has room to cut its policy rates as early as the fourth quarter of the 2006. The other two expected the BSP to lower rates in the first quarter of 2007. Singapore-based DBS Group Research said the Philippine interest rates are now among the highest in Asia, placing second to Indonesia in its ranking of countries with the steepest rates, after monitoring five countries from June 30 to August 9. ING Asia economist Prakash Sakpal also said the central bank has room to lower its overnight interest rates as early as the fourth quarter of the year. "For the BSP, shifting to a growth-oriented monetary policy is not as compelling as in Indonesia although we think an easier monetary policy is likely in the final quarter of this year," Sakpal said. DBS however expects the BSP to take its cue from the US Federal Reserve in easing its policy rates. "We believe the BSP will take a one-for-one cue from the Fed, moving only after the Fed does. This suggests that the BSP will only start cutting interest rates in the first quarter of 2007, once the Fed moves onto a similar path," DBS said. Macquarie Research also anticipates a cut in Philippine interest rates in the first quarter of next year. "We think the improving inflationary backdrop almost guarantees that the BSP will maintain the current policy setting for the remainder of the year – with a rate cut pencilled in for the first quarter of 2007," Macquarie said. "With the long-awaited government pump-priming remaining elusive, the BSP will be anxious to encourage a pick-up in consumer spending. This could be the catalyst, combined with easing inflation, for an earlier than expected interest rate cut." - GMANews.TV