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By Maricel E. Burgonio, Reporter
The Bangko Sentral ng Pilipinas
is likely to raise its interest rates before inflation hits peak
level in the third quarter of the year, think-tank group Global
Source said in its monthly report.
Given the recent increases in the
prices of goods, largely triggered by the rising costs of fuel and
escalating food crisis, the report said BSP would likely “raise
interest rates by 25 basis points in the immediate term before the
August-October peak in prices, primarily to signal its seriousness
in fighting inflation.”
The global market has been
speculating that oil prices would reach $200 a barrel in the span of
two years. However, Global source said food carries more weight than
oil in the consumer price index (CPI).
In the consumer basket, the
weight of food is 46.6 percent; fuel, 2.4 percent, and transport and
communication services, 7.5 percent.
According to Global Source, a
higher policy rate would help the central bank achieve lower
inflation as it would lessen the possibility of currency
depreciation.
On the other hand, a spike in key
rates would result in higher loan rates for housing and property.
Monetary authorities has been on
an easing cycle since the second half of 2007, cutting rates by a
total of 150 bps, with the last policy cut made in January this
year.
The last time the BSP raised
policy rates was in October 2005.
BSP’s overnight borrowing rate
stood at 5 percent while overnight lending at 5.75 percent.
Although inflation will remain
high until the third quarter, Global Source said the central bank
could very well manage the situation. It said BSP has given the
second-round wage effects serious attention at the same time that
good fiscal position helps rein in inflation.
Minimum wages in Metro Manila
increased only by P20 a day, lower than BSP’s projection of
additional P25 a day. A 50-centavo transport hike was also granted.
“We believe inflation will be
well-managed and will eventually fall particularly once higher base
effects set in,” Global Source said.
On the fiscal side, the think
tank said the national government still has the capacity to run
deficits without triggering a sudden expansion in public debt.
Under the current economic
scenario, Global Source said the government may post a primary
deficit of around P80 billion, or 1.1 percent of gross domestic
product this year, which translates to a total deficit of about 5
percent of GDP without suffering a decline in the debt ratio.
“The ratio can likewise remain
steady even assuming the less likely case where the peso depreciates
to P49 per dollar and growth drops to 3.5 percent. Hence, even in
the extreme case, we do not foresee a ballooning of public debt
beyond the nation’s capacity to repay it,” the report
extrapolated.
The debt-to-GDP ratio had been
declining significantly since 2005 driven by budget surpluses, rapid
economic growth, and strong peso appreciation.
“We see the era of fiscal
sustainability continuing,” Global Source said.
Margarito B. Teves Jr., Finance
secretary, earlier said the government is unlikely to balance its
budget this year given an expected slower economic growth and rising
inflation.
The government also increased its
expenditures for social services and infrastructure.
Global Source said government
revenues may also be placed at risk in the face of the clamor for
lower taxes.
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