The Bangko Sentral ng Pilipinas (BSP) is widely expected to raise its rates by at least 25 basis points (bps) this week.
Analysts said the market expects the country’s economic growth to slow down to 5.1 percent in the second quarter, coming off the 5.2-percent growth in the first quarter and the 6.4-percent growth in the last quarter of 2007.
The National Economic and Development Authority (NEDA) is scheduled to release the second quarter national income accounts and analysts said this would likely influence the decision of the Monetary Board.
According to UBS senior analyst Edward Teather, however, the surprise in the economic data would have to be fairly large to remove expectations of monetary policy tightening.
“We expect a 25-point rate increase from the BSP with the risk of a 50-point policy rate increase in the Philippines,” Teather said, adding that the Bank of Thailand is also expected to raise its rates by 25 points while no policy move is expected from Bank Negara Malaysia.
Teather said the second quarter gross domestic product data should be available to policy makers when the Monetary Board meets this Thursday to make its decision.
“This said, the surprise in growth relative to expectations would have to be quite large, given recent inflation prints, to remove market expectations of policy tightening,” Teather said.
Teather said real interest rates were very low and the BSP is expected to sound as if it was on its guard against inflation despite the trend towards slower growth.
“To be sure, GDP data is backward looking and is unlikely to allay financial market’s concerns regarding future growth,” he said. “However, some important relative messages should come out of the second quarter figures.”
Teather said that in the region, Indonesia was the only economy to have surprised on the upside so far in the second quarter. Relative to 2007, he said the country’s economic growth is expected to slow down.
The BSP itself said as much, with BSP Governor Amando M. Tetangco Jr. saying that with fears of economic slowdown in the background, price stability would be the primary concern when monetary officials hold their policy-setting meeting this week.
According to Tetangco, the BSP still considers the country’s growth trajectory as “respectable” despite moves at the Development Budget Coordinating Committee to downscale growth projections.
“A growth rate in the vicinity of five to six percent is pretty respectable,” he said. “We fully expect that to be sustained all the way to 2009.”
Tetangco indicated that while food prices have shown indications that they might start to ease, the BSP would want more definitive information that would show overall inflation easing.