BSP seen keeping rates steady

MANILA, Philippines - Moody’s Analytics Inc., a unit of New York-based Moody’s Investor Service, sees most central banks in Asia including the Philippines keeping interest rates unchanged until the end of the year as economies in advanced countries led by the US improve.

Katrina Ell, associate economist of Moody’s Analytics, said the Bangko Sentral ng Pilipinas (BSP) would likely keep policy rates steady in the second half of the year.

“We expect the central bank (BSP) will keep rates on hold through 2012. We also expect most central banks across Asia are keeping rates steady with the expectation global demand will gather steam in the second half of the year,” Ell said.

The BSP’s has so far slashed interest rates by 50 basis points this year due to benign inflation rate and fragile global economic growth.

The board reduced policy rates by 25 basis points last Jan. 19 and by another 25 basis points last March 1, bringing the overnight borrowing rate back to a record low of four percent and the overnight lending rate to six percent.

During its policy rate setting meeting last April 19, the BSP decided to keep rates unchanged at record lows to assess the impact of the earlier rate cuts on the domestic economy.

“Policy rates in the Philippines are appropriate at the moment. The Philippines has held up well, recording solid growth, even as neighboring economies such as Taiwan have been dragged into recession, thanks to weakened global demand,” she added.

The BSP sees the country’s inflation averging 3.1 percent this year or well within the target of between three percent and five percent. Inflation averaged three percent in the first four months of the year after shooting up to three percent in April from 2.6 percent in March.

The Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s gross domestic product (GDP) growing at a faster rate of between five percent and six percent this year.

The country’s GDP growth slackened to 3.7 percent last year from 7.6 percent in 2010 due to weak global demand and cautious spending by the Aquino administration.

However, the unit of the rating agency pointed out that central banks in the region could further slash interest rates if the sovereign debt crisis in Europe worsens.

“But if Europe’s debt crisis deteriorates and this generates a global crisis of confidence, the Philippines, along with other Asian central banks would be expected to loosen rates,” Ell warned.

According to her, the debt crisis in Greece and other countries in Europe would continue to drag on financial market sentiment for the foreseeable future.

The Philippines has so far received at least five upgrades from rating agencies since President Aquino assumed office in June of 2010.