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Abad backs BSP decision to keep rates steady

Prinz Magtulis - The Philippine Star

MANILA, Philippines - The government has supported the central bank’s decision to keep interest rates steady despite low-trending inflation that has prompted calls for a looser monetary policy to support economic growth.

“There is no need for it. I agree with the BSP governor that now is not the time to lower the rates. Not at this moment,” Budget Secretary Florencio Abad told The STAR in an interview on Tuesday.

Abad chairs the inter-agency Development Budget Coordinating Committee (DBCC), which sets the government’s macroeconomic targets. Its members are the Department of Finance, the Bangko Sentral ng Pilipinas (BSP), the Office of the President and the National Economic and Development Authority.

Lower rates, which could encourage more bank lending and investment, are not necessary because the money supply in the economy is more than enough, Abad said.

The central bank has stood pat on tweaking any of its policy tools this year despite slowing inflation and opinion from local and international analysts to lower rates to provide more funds to a slowing economy.

The Philippine economy expanded 5.3 percent in the first semester, slowing from 6.4 percent in the same period a year ago despite inflation hitting a record-low of 0.4 percent as of September, census data showed.

“There is a lot of liquidity, and there is still more room for a lot of expansion,” Abad pointed out.

The budget chief cited the continued influx of cash remittances from overseas Filipinos, which grew 5.6 percent to $12.084 billion as of the first semester.

The business process outsourcing industry (BPO) is also a source of strength, Abad said. Finance Secretary Cesar Purisima said in a forum on Tuesday BPO earnings could surpass remittances next year.

On average, overseas remittances amount to $22 billion for the past four year, BSP data showed.

For the first nine months, consumer prices have risen by an average of 1.6 percent, below the official two- to four-percent target for the year.

The DBCC, in its mid-year report last Sept. 30, said inflation could settle under its goal due to prevailing low oil prices in the global and domestic markets.

“The current oil market situation of production outpacing global demand could persist over the near-term,” the report said.

“Slower global economic activity could (also) pose a downside risk to inflation,” it added.

Despite slowing inflation however, Philippine interest rates have been kept stable at four and six percent for overnight borrowing and lending, respectively. They have been at that level since October last year.

The BSP’s inaction stands in contrast with some of its Asian peers that decreased their rates in the face of slowing regional growth.               

The Bank of Korea, for instance, have slashed rates-- now at record-low 1.5 percent-- three times since August last year. Central banks in Thailand and India have made similar moves this year.

Aside from huge liquidity, Abad said the economy is also benefiting from the state infrastructure projects, which rose 93 percent in July and more than a fifth in August. 

The budget chief said this trend is expected to continue throughout the remainder of the year.    

vuukle comment

ABAD

ACIRC

BANGKO SENTRAL

BANK OF KOREA

BUDGET SECRETARY FLORENCIO ABAD

DEPARTMENT OF FINANCE

DEVELOPMENT BUDGET COORDINATING COMMITTEE

FINANCE SECRETARY CESAR PURISIMA

NBSP

PERCENT

YEAR

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