Goldman Sachs sees slightly weaker growth for Phl

MANILA, Philippines - Economic growth is expected to be slightly weaker as credit may decline following the Bangko Sentral ng Pilipinas’ adjustments in key policy rates, Goldman Sachs said in a report.

“We expect a modest deceleration in activity following incremental monetary tightening and the central bank’s efforts to slow credit growth this year,” the investment banker said.

The Philippine economy grew by 5.8 percent in the first nine months of 2014, below the government’s 6.5- to 7.5- percent target.

In the third quarter, the central bank raised the overnight borrowing and overnight lending rates by a total of 50 basis points to four percent and six percent, respectively, to ensure inflation will fall within the targets for this year until 2016.

These moves have already translated to a pass-through of 61.2 percent to bank lending rates as of October this year, central bank officials earlier said.

The average bank lending rate went up to 5.697 percent in end-October from 5.391 percent in end-June.

But despite higher interest rates, latest BSP data showed bank lending remained brisk in November as it grew by 20 percent to P4.317 trillion.

The expansion rate, however, is slower than the 21.1 percent in October but credit remained supportive of growth of the domestic economy as 90 percent of the borrowings went to production activities.

“Commodity price relief should help forestall additional tightening in the very near term, though our measures suggest that the economy may be overheating at least slight,” Goldman Sachs said.

Inflation peaked at 4.9 percent in July and in August on tight supply conditions blamed to the deadly typhoon Yolanda that hit Visayas in November last year and the congestion in key ports in Metro Manila.

The rate, however, slid to 3.7 percent in November and is expected to ease further to 2.4 to 3.2 percent in December on the lower prices of rice, oil, and jeepney fares.

Inflation stood at an average rate of 4.3 percent in the first 11 months of 2014 and is seen settling within the BSP’s three- to four-percent target for the year.

The central bank earlier forecast the rate to average three percent next year and 2.6 percent in 2016, both within the two- to four-percent goals for the period.

Monetary authorities in October and December held key policy rates steady as inflation expectations remain anchored. The Monetary Board will revisit policy settings next on Feb. 12, 2015.