|
By Maricel E. Burgonio Reporter
THE Bangko Sentral ng Pilipinas (BSP)
may cut interest rates twice within the next three months to sustain
the country’s growth momentum, Union Bank of Switzerland (UBS)
said.
In a report, UBS said the BSP may
undertake two 25-basis points cuts due to fears of a slowdown in the
Philippines’ biggest market, the US.
The investment bank said the
central bank may undertake the first easing this month, and the
second in the next two to three months.
“We see this as an insurance
policy to help sustain domestic growth momentum in the context of
projected inflation remaining within the target band in 2008 and
2009,” UBS said.
The BSP has set an inflation
target of 3 to 5 percent in 2008 and 3 to 4 percent in 2009.
Inflation reached 2.8 percent in 2007, lower than the 4 to 5 percent
full-year target.
A weak US economy would put
pressure on the dollar, thus strengthening the peso.
“We believe that BSP monetary
policymakers remain willing to cut policy rates, if growth can be
supported in the context of meeting the inflation target,” UBS
said.
It added that the BSP may appear
to be following [the US] Fed, but any such move on the part of
Philippine monetary authorities will be due to domestic
considerations.
The Development and Budget
Coordinating Committee expects the Philippine economy, as measured
by the country’s gross domestic product (GDP) to expand between
6.3 and 7 percent this year.
UBS said the BSP is likely to opt
for a looser monetary policy if growth expectations were reduced as
a result of further currency appreciation, external shocks from
commodity prices, or a loss of confidence in the domestic economy.
The investment bank said that the
implied shift in the balance of risks to Philippine growth, and the
ongoing gradual appreciation of the peso against the dollar implied
that there is a likelihood of a further policy rate reduction.
On December 20 last year, the BSP
cut its key policy rates by 25 basis points to 5.25 percent for the
overnight borrowing and 7.25 percent for the overnight lending
windows.
|
