BSP seen keeping rates steady on strong PH growth

Posted at 01/21/13 3:21 PM

 MANILA - The Philippine central bank looks certain to keep its key policy rate steady at a record low on Thursday, a Reuters poll showed, with inflation likely to stay benign and economic growth expected to sustain last year's strong momentum. 

All 13 economists polled forecast that the central bank will leave the overnight borrowing rate unchanged at 3.5 percent for a second meeting in a row. 

Most of them expected policymakers would stand pat on rates until at least the end of the first half of the year. 

"With growth well on track and inflation at the lower end of the inflation target, we do not foresee that the central bank will tweak policy rates," said Jeff Ng, economist at Standard Chartered Bank in Singapore. 

The same poll showed quarter-on-quarter growth likely slowed in October to December from the previous three months, due largely to slower exports. 

The median forecast of 0.6 percent seasonally adjusted quarter-on-quarter growth in the poll would be the weakest since the 0.4 percent pace seen in the third quarter of 2011, but still indicate a fair bit of resilience to the global downdraft, due largely to strong domestic demand. 

From a year earlier, the economy probably expanded 6.4 percent, weaker than the September quarter's 7.1 percent, but stronger than the second quarter's 6.0 percent and the first quarter's 6.3 percent. 

The growth estimate would bring 2012 full-year growth at 6.5 percent, surpassing the government's 5 percent to 6 percent growth target. 

"We don't see any evidence that we should act more decisively at this point because you have a growing economy, which means monetary policy stimulus is less needed," Deputy Governor Diwa Guinigundo told reporters late on Friday. 

"We should recognize that the potential growth of the economy appears to have gone up which means that the absorptive capacity for more flows, for more credit, has gone up. The probability that demand pressures are building up may be there, but the economy can very well absorb it at this point," Guinigundo said. 

Inflation remained manageable throughout 2012, allowing the central bank to cut interest rates by a total of 100 basis points last year to boost domestic demand and manage strong capital inflows.     

Highlighting its view that price pressures will remain moderate despite robust economic growth, the central bank, in December, lowered its 2013 average inflation forecast to 3.1 percent from 3.9 percent and its 2014 forecast to 2.9 percent from 3.1 percent. 

Economists estimate the Philippine economy will grow 6.3 percent this year, within the government's 6 percent to 7 percent goal.