Weak global prospects, low inflation give BSP room for add’l policy support

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has “flexibility” and “room” for additional policy support, which a global investment bank predicts could come as early as next month given the weak global economic prospects and manageable inflation.

“Monetary policy has room to allow additional support,” BSP Deputy Governor Juan de Zuñiga said in a briefing presenting the Third Quarter Inflation Report yesterday.

Zeno Ronald Abenoja, director of BSP’s department of economic research, also said: “Balance of economic evidence and benign inflation outlook provide room for additional support to output growth amid continued weak external demand prospects.”

Despite sterling growth averaging 6.1 percent as of the first semester, the Philippines enjoyed a slow inflation environment at 3.2 percent as of October. This has allowed the BSP to slash key interest rates to new record-lows to support further economic expansion.

This could come as early as December, Bank of America-Merrill Lynch said, as inflation slowed to 3.1 percent in October.

“Philippines’ inflation easing over the last two months justifies the non-consensus policy rate cut applied by the Bangko Sentral ng Pilipinas in late October, and more importantly, opens the door for a further rate cut in December,” BofA said in a research note dated Nov. 7.

Citing manageable inflation and the need to support growth, BSP has cut policy rates this year by a total of one percent to 3.5 percent for overnight borrowing and 5.5 percent for overnight lending.

BSP rates–set every six weeks–serve as benchmarks for bank loan rates, thus lowering them make availing loans more affordable. The last policy meeting for the year is on Dec. 13.

“There was policy headroom for the past three quarters… and this policy space was utilized,” BSP Assistant Governor Ma. Cyd Tuaño-Amador said in the same briefing.

Abenoja said inflation risks appear to be “broadly balanced,” meaning it could continue to slow given fragile global economy and strong peso, but it could also accelerate due to threat of higher electricity prices next year.

BSP expects inflation to hit 3.3 percent this year, 3.9 percent next year and 3.1 percent in 2014, within its official three to five-percent target for those years.

Last month, inflation slowed further to 3.1 percent from 3.6 percent in September and 3.8 percent in August, National Statistics Office data showed.

“We do not see any build up (in inflation) even during the holiday season,” Amador told reporters after the briefing.