BSP seen keeping rates

MANILA, Philippines - British banking giant HongKong and Shanghai Banking Corp. (HSBC) sees the Bangko Sentral ng Pilipinas (BSP) keeping interest rates unchanged at record lows tomorrow due to recovering exports as well as higher government spending.

In a report, HSBC economist Trinh Nguyen said the has scope to keep rates steady on Thursday due to better-than-expected trade data.

“With exports performing better than expected recently and likely to be relatively better than last year’s, coupled with increased government spending, the BSP has scope to keep rates steady when they meet on Thursday,” Nguyen said.

She pointed out that monetary authorities are likely to monitor the impact of the rate cuts last Jan. 19 and March 1 that brought back interest rates back to record lows.

The BSP slashed policy rates by 50 basis points so far this year, bringing the overnight borrowing rate back to a record low of four percent and the overnight lending rate at six percent.

“With better-than-expected trade data, the BSP has scope to keep rates steady on Thursday BSP seen to monitor the impact of the cuts in the first quarter,” the economist said.

Latest data from the National Statistics Office (NSO) showed that exports jumped 14.6 percent in February. The country’s export earnings went up by 8.8 percent to $8.55 billion in the first two months of the year from $7.865 billion in the same period last year.

 “The BSP preemptively lowered rates in the first quarter by 50 basis points to support spending. However, with stronger-than-expected exports data it has room to hold rates steady to monitor price conditions.

Furthermore, HSBC said remittances from overseas Filipino workers (OFWs) would continue to boost domestic consumption.

Weak global demand and cautious government spending pulled down the country’s gross domestic product (GDP) growth to 3.7 percent last year from 7.6 percent in 2010. Robust domestic consumption helped offset a sharp drop in export earnings.

The BSP reported the other day that OFW remittances climbed 5.6 percent to $3.144 billion in the first two months of the year from $2.977 billion in the same period last year due to strong demand for skilled Filipino workers abroad.

 “With remittances providing a vital boost for domestic consumption, the BSP

preemptively lowered rates by 50 basis points to support spending,” Nguyen said.

According to her, the BSP could keep rates unchanged until the end of the year as inflation is expected to rise in the second half of the year but would still fall within the BSP target of three percent to five percent.

 “Furthermore, with a volatile external environment that could stoke inflationary pressures through both imported inflation as well as domestic supply shocks, the BSP will likely hold rates steady for the rest of the year,” Nguyen said.

Amid soaring oil prices, Inflation eased to 2.6 percent in March from 2.7 percent in February bringing the average inflation to 3.1 percent in the first quarter of the year.