PHL likely to keep key rates unchanged, analysts say

By SIEGFRID O. ALEGADO, GMA News

Published December 10, 2012 11:58am

(Updated 1:28 p.m.) Philippine monetary authorities will likely keep key rates unchanged when they meet for the last time this year on Thursday, analysts said, citing inflationary pressures stemming from a strong economy.

“We do not expect any rate change in December,” Jeff Ng, Singapore-based economist at Standard Chartered Bank Ltd., noted in an interview by e-mail.

In a separate interview, economist Eugene Leow at Singapore-based DBS Bank Ltd. agreed, saying, “Further monetary easing does not appear likely this week… Given the robust economic growth momentum in recent quarters, price pressures will likely build.”

Robust growth coupled with recovery from China and strong consumer sentiment from the US may stoke inflation in the coming months, added Trinh Nguyen, Hong Kong-based economist at HongKong and Shanghai Banking Corp. Ltd.

Such developments in the US and China – the world's largest economies – create inflationary risks globally as they stoke demand and induce a more active merchandise trade.

So far this year, the Monetary Board cut interest rates by 100 basis points to record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending.

The Monetary Board lowers rates as a springboard for growth and raises rates to temper price pressures.

While inflation is expected to stay within the Bangko Sentral ng Pilipinas's 3 percent to 5 percent target this year, analysts see consumer prices accelerating next year.

“We expect an uptick in average inflation to 4.1 in 2013, up from [our] 3.3 percent [forecast] in 2012,” said Leow.

Philippine output – as measured by the gross domestic product – hit a surprising 7.1 percent in the third quarter, lifting the nine-month average to 6.5 percent.

The government reported inflation further eased to 2.8 percent in November.

Analysts said the Philippines may also employ prudent measures to cushion impact of higher inflows of foreign funds in search of better returns but may cause volatility in the foreign exchange market and impact on domestic prices with the onslaught of more money in the financial system.

Macro-prudential tools reduce the risks on the economy by setting portfolio limits on foreign currency lending and other targeted transactions.

“It is likely that the BSP will employ more measures to curb hot money inflows and slow [Philippine peso's] appreciation,” said Ng.

Such measures help curb inflationary pressures and other imbalances in the macroeconomic fundamentals, he added.

Leow noted, “ Macro-prudential measures to control NDFs (non-deliverable forwards) may be forthcoming in the coming months.”

NDFs are dollar-based derivatives that are traded offshore and can be used for hedging and also for taking a position on a currency. These are are futures contract between two parties to buy or sell foreign exchange at an agreed price.

Early this month, monetary authorities hinted on possible NDF caps – a 90-day holding period for Philippine markets – to stabilize foreign exchange fluctuations.

Inflow of speculative money into the local market has caused the Philippine peso to appreciate by more than 6 percent against the dollar, affecting the business of exporters and the money transferred by overseas Filipinos back to relatives in the Philippines. — VS, GMA News

Tags: money&banking, interestrates, bangkosentral, monetaryboard