BSP seen cutting rates in Dec

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) could cut key rates on its last policy meeting in December to support export growth, an investment bank said yesterday.

“Depending on how the export numbers play out, there may be a need for a further cut in the overnight borrowing rate in the (fourth quarter),” DBS Ltd. economist Eugene Leow said in the bank’s latest Daily Breakfast Spread.

Sought for details, Leow said in an e-mail: “I think the rate cut is will be a close call. If it does come, I think it is more likely to materialize on Dec. 13 as the export numbers still look okay for now.”

Exports have expanded by 7.7 percent year-on-year as of July, still below the official 10-percent growth target for the year, data showed.

BSP only has two policy meetings remaining for the year, one on Oct. 25 and another on Dec. 13. Once it cuts rates, it is expected to discourage interest-seeking capital inflows in entering the country, thus, helping avoid the peso to strengthen more.

A strong peso trims dollar export earnings when they are converted into pesos.

“Yes it is true that exports have grown relatively well, but it is difficult to see momentum sustaining against such a weak external demand backdrop,” Leow explained.

BSP’s policy-making Monetary Board has cut its key rates by an aggregate of 75 basis points in the year to record-lows of 3.75 and 5.75 percent for overnight borrowing and lending, respectively.

It kept rates unchanged during its last policy meeting on Sept. 13, citing the need to support economic growth as inflation stayed at 3.1 percent as of August, or at the low-end of BSP’s three- to five-percent for the year.

For September, DBS expects inflation to settle at 3.7 percent, almost unchanged from 3.8 percent in August, as higher food prices due to floods caused by monsoon rains persist.

“We are not unduly worried about inflation, noting that food prices should ease once the flood disruptions are over. Notably, inflation is still expected to average 3.3 percent this year,” Leow said in the report.