China rate cut seen positive for PH

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The central bank and a private company analyst said China’s latest policy action to underpin its economic growth with supportive interest rates should also impact the Philippine economy positively.

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“With regard to China’s action, to the extent this will result in sustaining growth in the Chinese economy – this should be positive for our growth prospects in the medium term,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters in a text message late Monday.

The People’s Bank of China (PBoC) announced a surprise interest rate cut on Friday in a move to spur the country’s economic growth.

The PBoC reduced its one-year rate for deposits by 25 basis points to 2.75 percent, and its one-year lending rate by 40 basis points to 5.6 percent. Friday’s rate announcement—the first cut since July 2012—followed a series of weak figures indicating the world’s number two economy, a key driver of global growth, is struggling.

Tetangco said foreign exchange markets on Monday took the easy policy pronouncements, not only in China but also in the European Central Bank, as an indication it was time to consider adding risk-assets again for their portfolios.

The BSP governor stressed that the central bank takes into consideration the policy actions of advanced economies and other major trading partners in its overall assessment of the country’s operating environment.

“We will continue to closely monitor the impact of the Chinese action on overall market risk appetite going forward,” he concluded.

An analyst from Accord Capital Equities Corp. said the PBoC action should narrow the gap or spread between Philippine and Chinese interest rates.

“Thus, on a same-risk basis, the return on Philippine assets should now be even more comparable with those of China,” Justino Calaycay of Accord Capital Equities said.

Calaycay also said that if China’s policy action manages to achieve the purpose for which it was designed, the Chinese economy should get a much-needed boost, particularly on the consumer demand side.

“This opens doors for our local manufacturers/exporters. More so if it manages to spur (growth) in the entire Chinese economy,” he added.

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