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By Maricel E. Burgonio Reporter
The Bangko Sentral ng Pilipinas
may further cut its interest rates in the next policy meeting in
January to help slow the peso’s appreciation, the Development Bank
of Singapore (DBS) said.
“We look for overnight BSP
borrowing and lending rates of 5 percent and 7 percent,
respectively, by end-January 2008,” DBS said in its recent
economic outlook on the Philippines.
The BSP had cut interest rates by
75 basis points in October, November and recently on December 20
this year.
BSP’s rate cuts will keep the
US dollar-peso interest rate differential from widening too much in
the aftermath of US Fed rate cuts.
“The peso’s rise can only be
tempered, not stopped,” DBS said.
Although the peso appreciation
will help counter the effects of higher oil prices on the economy,
it will also take a toll on labor export earnings as well as on
exports of goods and services.
Because of this, DBS maintained
its view that the Philippines economic growth will be moderate at
6.6 percent in 2008 from a projected 6.9 percent this year.
In the first nine months, the
economy, as measured by the country’s gross domestic product, grew
7.1 percent, the highest in more than two decades. The Development
Budget Coordination Committee (DBCC) projects that GDP growth is
likely to grow at a slower pace of between 6.3 percent and 7 percent
from 6.2 percent and 6.8 percent because of costlier crude and a
stronger peso, which dampen exports growth.
Meanwhile, DBS expects the
peso-dollar rates to fall by 9.6 percent next year, with the peso
finishing the year at P38.
The projection puts more pressure
on the government to find ways to alleviate the impact of the
strengthening peso on remitted earnings.
These include the reduction of
remittance costs and skill-improvement programs for lower-paid
overseas foreign workers.
The government is also looking at
ways through which workers can hedge and even invest their earnings
to offset the impact of peso appreciation, possibly through a
$1-billion issue of retail treasury bonds for overseas Filipinos and
their families.
According to BSP, remittances
coursed through banks by overseas Filipinos, both workers and
migrants, are expected to grow by 12 percent to $14.3 billion this
year.
In 2008, BSP said remittances are
likely to grow 10 percent to $15.4 billion.
DBS said remittances from
overseas foreign workers in the third quarter were up just 4.4
percent year on year in peso terms.
Since mid-September, the peso has
been up by over 12 percent against the dollar.
The period accounted for
two-thirds of the 18-percent year-to-date appreciation.
“The peso appreciation helps to
lessen the pain of higher crude oil prices. But the other edge of
the sword is far sharper, as peso appreciation takes a direct toll
on the economy’s two key pillars—consumer spending and
exports—by eating into the remitted earnings of overseas foreign
workers and by hurting export competitiveness.”
DBS said consumer spending, which
has come to be so dependent on the income that
overseas Filipinos send home,
slowed to 5.6 percent year on year in the third quarter of this year
from a three-year high of 6.0 percent in the second quarter of this
year.
Looking ahead, DBS said
consumer spending in 2008 can only match the 5.7-percent rise it
expects for this year, assuming that monetary policy will be
supportive.
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