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By Maricel E. Burgonio, Reporter
The International Monetary Fund said Bangko
Sentral ng Pilipinas will have more scope for monetary easing as it
expects inflation to slow down in the later part of the year.
In response to the projected moderation of
economic growth and inflation, IMF said in its April 2008 Regional
Economic Outlook that only “Malaysia and the Philippines both have
scope for easing” among emerging Asian countries.
It said further cuts in interest rates would fuel
the Philippines economic growth, as measured by gross domestic
product, this year. IMF projected the country would post a modest
growth of 5.8 percent this year compared with 7.3 percent last year.
“The Philippines has used an appreciation of
the peso to tighten monetary conditions allowing for a modest
lowering of policy rates,” the report said.
IMF said the expected decline in emerging
countries’ economic growth and moderation of inflation, or
increase of prices, in the second half the year would force central
banks to cut interest rates.
“The current growth momentum and inflation
levels suggest that growth concerns should be balanced against
inflation concerns. As such, the room for monetary policy maneuver
appears limited in a number of countries, although greater exchange
rate flexibility in many countries would help,” IMF said.
IMF expects the country’s inflation to reach 4
percent this year from 2.8 last year.
Although inflation expectations remain generally
well anchored, price pressures are on the rise and monetary
conditions have loosened across the region, IMF said.
It noted that with the US Federal Reserve
aggressively lowering interest rates, there is no pressure on some
Asian central banks to follow suit.
However, the IMF said many central banks may
find it difficult to lower policy rates, given the rising inflation
pressures.
It observed that Philippine inflation even at a
21-month high of 6.4 percent in March remains below the rising
inflation levels in Indonesia, currently at 8.17 percent. This was
affected by high prices of fuel and food imports, particularly rice.
Key policy rates stood at 5 percent for
overnight borrowing and 7 percent for overnight lending. BSP has
eased the settings of special deposit account facility.
A potentially difficult monetary policy issue
facing a number of Asian policy makers in the baseline scenario is
the interaction between interest rates vis-ŕ-vis the United States,
capital inflows and the exchange rate.
IMF said it expects growth in emerging Asia to
decline by 1.5 percentage points to 7.6 percent in 2008 due to lower
exports growth, slowdown in investments driven by US sub-prime
mortgage crisis and high oil prices.
However, the South East Asian countries growth
would still reflect buoyant domestic demand.
Investments in Association of South East Asian
Nation (Asean)-5 countries are expected to grow by 11.5 percent this
year from 7.9 percent last year. Philippines investments, however,
are expected to grow 10.5 percent this year from 9.5 percent last
year.
IMF expects export growth in Asean-5 countries
to reach 9.2 percent from 6.9 percent last year. Philippines export
growth is expected to grow at 7.3 percent this year from 3.1 percent
last year.
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