Interest rates likely to go down further — bankers

Despite hitting historic lows, banking industry leaders said local interest rates still have not bottomed out and are likely to go down further as monetary officials hinted at the possibility of cutting bank reserve requirements.

With the Philippine economy showing relative resilience following the US-Afghanistan war, banking experts said they also do not see further volatility in the peso-dollar exchange rate.

According to John McGowan, Philippine treasurer at Hongkong and Shanghai Banking Corp. (HSBC), the Monetary Board still had several tools at its disposal with which it could bring down interest rates even further, aside from simply imposing cuts on its policy rates.

McGowan pointed out that the dramatic decline in interest rates had been largely due to the decision of the Monetary Board to impose a tiering scheme on funds parked at the Bangko Sentral ng Pilipinas (BSP) which effectively reduced interest rates on these bank funds.

"These are good moves of the central bank to bring interest rates down," McGowan said. "But Philippine interest rates are still higher than the rest of Asia, we just have to see how the BSP will move but there are hints even now."

According to him, the perception of the Philippine economy has already improved significantly and this would give policy makers wider latitude to rein in interest rates while encouraging banks to lend.

The BSP earlier said it is now looking at banks’ reserve requirements after it revised its tiering scheme back to back with its move to cut its policy rates.

"The perception is that the economy is getting better," McGowan said. He added that the only pressure that Philippine interest rates could be facing would be if the US Federal Reserve decided to hike its own interest rates.

"If the US Fed decides to hike, there will be less room for the Monetary Board to bring interest rates down," he said. "But I think they will keep it steady."

McGowan said the peso-dollar exchange rate, on the other hand, would be stable, barring any unforeseen event that could rock currencies around the world. "I don’t really see anything dramatic happening in the foreign exchange," he said, adding that the Philippines has been successfully de-coupled from the regional economy which is still in a slump.

McGowan projected that the peso would be trading around the P51.75 to $1 mark, possibly going down to P50 to $1. "I think it will stay in this narrow band," he said. "We have successfully extracted ourselves from what is happening in Japan," McGowan said, adding that if predictions come true and the Japanese yen drops to Y150 to a dollar, there could be some pressure on the peso-dollar exchange rate.

"But if it holds, there is no pressure on the peso-dollar rate. – Des Ferriols