BSP to consider global, local dev'ts in future policy actions

MANILA, Philippines -  Future policy rate actions would consider global and local developments, including government rehabilitation efforts after a recent calamity, the Bangko Sentral ng Pilipinas (BSP) said yesterday as it welcomed second quarter growth results.

 “The better-than-expected GDP (gross domestic product) growth turnout at 5.9 percent should boost market confidence that the economy will be able to grow at closer to the higher end of the current government target of five- to six-percent,” BSP Governor Amando Tetangco Jr. said in a text message to reporters.

With this, Tetangco said “BSP will review the stance of policy” considering the impact of foreign inflows to the peso, accelerated government spending, and the still fragile global economy.

BSP’s policy-making Monetary Board is scheduled to review policy rates on Sept. 13. During its last meeting on July 26, it slashed key rates to new record-lows of 3.75 and 5.75 percent for overnight borrowing and lending, respectively, citing the need to support domestic demand.

When BSP cuts rates, it is with an end in view of encouraging more bank lending to boost consumption and thus, growth.

Tetangco said the second quarter growth of 5.9 percent, though down from the revised 6.3 percent during the first three months of the year, will make the Philippines attractive to foreign inflows, hence, cause the peso to appreciate more.

While a strong peso makes imports more affordable, it also trims dollar export earnings and remittances when they are converted into pesos.

“Improved market sentiments to peso assets” as well as state rehabilitation and reconstruction efforts after the recent calamity “will be taken into account” as BSP “calibrate any further action,” the BSP chief said.

 “We have sufficient room in our policy toolkit to address these factors to protect our inflation target,” he added. Inflation averaged 3.1 percent as of July, within the lower-end of BSP’s three to five-percent target.

Analysts have mixed views on BSP’s next policy action.

“With inflation likely to rise significantly in the coming months due to anticipated food supply shocks, higher transportation prices and still strong domestic demand, monetary officials will likely keep rates steady at 3.75 percent,” said HSBC economist Trinh Nguyen in a note.

For his part, DBS Bank economist Eugene Leow said in an e-mail another rate cut may happen within the year although “there does not seem to be any urgency” for such. “But if we see export numbers falter, BSP may be inclined to further ease monetary policy,” he explained.

Barclays regional economist Prakriti Sofat is of the same view.