NY-based think tank sees BSP keeping low rates till late 2010

MANILA, Philippines - New York-based Global Source Partners sees the Bangko Sentral ng Pilipinas (BSP) keeping policy rates at record lows until the latter part of 2010 due to stable inflation and lending slowdown.

In a 15-page report on the Philippines titled “Never Can Say Goodbye,” Global Source cited the disappointing gross domestic product (GDP) growth as well the slowdown in bank lending as the major factors that would give monetary authorities more space to maintain its current policy stance.

“With disappointing GDP results and a lending slowdown, we expect monetary authorities to continue keeping policy rates fixed until the latter part of next year when the economy gains greater momentum,” the think tank said.

The central bank’s Monetary Board is scheduled to meet on Dec. 17 to decide on whether or not to keep or adjust its policy rates.

Economic managers through the Development Budget Coordination Committee (DBCC) forecast the country’s GDP expanding between 0.8 percent and 1.8 percent this year from 3.8 percent last year due to the full impact of the global economic slump.

However, GDP growth eased to 0.7 percent in the first nine months of the year from 4.2 percent in the same period last year.

On the other hand, bank lending growth eased to 4.7 percent to reach P2.008 trillion in end-October from P1.918 trillion in the same period last year compared with the 5.9-percent growth registered in September.

Global Source said inflation is likely to average 3.3 percent this year and about 4.5 percent next year as authorities continue to monitor upside risks brought about by rising commodity prices.

 “Oil and rice prices are thus the variables to be closely monitored. The Philippines, the world’s biggest rice importer, has been boosting its rice stock after the crop damage brought about by the recent string of typhoons thus contributing to an increase in world prices. Meanwhile, world oil values are expected to climb along with a global recovery and continued growth of emerging markets,” it added.

Inflation kicked up to a six-month high of 2.8 percent in November from 1.6 percent in October, bringing the average inflation to 3.2 percent in the first 11 months of the year from 9.4 percent in the same period last year.

The BSP’s Monetary Board has kept its policy rates at record lows after slashing the overnight borrowing and lending rates by 200 basis points between December last year and July this year.

The overnight borrowing rate is currently pegged at a record low of four percent while the overnight lending rate is placed at six percent.

Monetary authorities believe there is no urgency or pressure for monetary authorities to implement an exit strategy amid the global economic rebound.

The BSP said the forecast inflation path shifted slightly higher to 3.28 percent from 3.03 percent this year but is still within the target of between 2.5 percent and 4.5 percent.