MANILA, Philippines — The central bank will likely not cut rates beyond 25 basis points in the next months unless global economic upheavals shift to a worse situation, HSBC officials said in a press briefing.
The interest rates outlook for 2012 for the Philippines, said Benjamin Pedley, Managing Director and HSBC Head of Investment Strategy for Asia, is flexible and will largely depend on external factors.
"It's too difficult to tell for the rest of the year, we have to see developments (global econony and markets)," said Pedley, adding that clearly, if the global economic conditions will deteriorate markedly in the next quarters, the central bank will have to make policy adjustments. "We're not forecasting any more (monetary policy) cuts at this stage," said Pedley.
HSBC Philippines President and CEO Tony Cripps, for his part, said the fiscal situation will greatly influence the direction of policy stance. "The fiscal side is very important (and) if government spending can be done and stimulates the economy, then there may be no need for further BSP (actions)."
Both Cripps and Pedley declined to issue any outlook on further rates cut but agreed that an easing of key rates will be driven by external environment concerns.
"But if external environment deteriorates, there will be more cuts," said Pedley. "We see no concerns for the domestic (economy) side," he added.
After Thursday's monthly policy meeting, the Bangko Sentral ng Pilipinas (BSP) cut overnight borrowing and lending rates by 25 basis points to 4.25 percent and 6.25 percent, respectively, noting the benign inflation outlook which allowed some scope for a reduction in policy rates to help boost economic activity and support market confidence.
BSP Governor Amando M. Tetangco Jr. and Deputy Governor Diwa C. Guinigundo said they will continue to monitor "emerging demand and price developments" to ensure that monetary policy settings remain supportive of non-inflationary economic growth.
Based on its latest Philippine commentary report, HSBC economists said that price pressures have eased and there is continued favorable outlook for the BSP, giving it room to "offset the impact of rapidly cooling trade." It cited the weak global electronics demand as one of the negatives for the Philippine exports this year.
HSBC forecast GDP to grow by 3.6 percent for both 2011 and 2012, well below the government's target of 5-6 percent. "Growth for the second and third quarters (2011) disappointed at 3.1 percent year-on-year and 3.2 percent, respectively, reflecting weak exports growth and slower-than-expected government spending in the first three quarters of 2011. However, October 2011's announcement of P72 billion worth of stimulus suggests government spending is set to reaccelerate this year," said HSBC.
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