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THE Bangko Sentral ng Pilipinas (BSP) said the
decline of the country’s manufacturing sector couldn’t be solely
ascribed to the appreciation of the peso.
In a new study, the BSP said the
sector was already suffering from difficulties even when the peso
was depreciating from 2004 to 2005 due to high power costs, weak
infrastructure, financial and corporate restructuring and
competition from China.
The BSP also said the country
still ranks as one of the lowest in the Global Competitiveness Index
among Asian economies included in the survey.
The survey cites inadequate
supply of infrastructure as the second most problematic factor in
doing business in the Philippines. As a result, the manufacturing
sector has suffered from import competition via squeezed margins and
reduced market share.
There are also well known
structural shifts in the economy with consequent reallocation of
resources, the central bank said.
“The services sector has grown
substantially, accounting for nearly half of GDP growth in recent
years. This trend may indicate a diminishing comparative advantage
of the Philippine manufacturing sector,” the BSP said.
The government said factory
output continued its downturn last year as the manufacture of
petroleum products, tobacco, footwear and clothing apparel remained
sluggish.
The peso is expected to remain
firm this year despite the risk posed by volatile oil prices,
turbulence in the financial markets due partly to problems in the US
housing market, and global credit tightening.
BSP Gov. Amando M. Tetangco Jr.
said the peso is expected to weather these external shocks as the
country’s sound macroeconomic fundamentals, particularly the
country’s resilient economic growth, benign inflation and
comfortable external payments position, will continue to generate
market confidence.
The peso appreciated 18.8 percent
last year, making it one of Asia’s best performers.
BSP seen to keep overnight rates
steady
After inflation picked up to a
16-month high, the BSP is unlikely to cut its overnight rates
anytime soon, Hong Kong Shanghai Banking Corp. (HSBC) said Thursday.
In a briefing, Frederic Neu-mann,
HSBC economist, said the BSP is in a very tight position as it tries
to balance keeping inflation at bay and taming the peso’s rise as
a result of the weakening US economy.
The BSP’s Monetary Board is set
to meet later this month to decide on whether to reduce its
overnight rates in light of its US counterpart’s plan to undertake
another round of monetary easing.
“It is inconceivable that the
BSP will cut rates (as) inflation continues to drift (between) the
four to five percent (and) the average will not likely go to the
desired level. The big risk is commodity prices are high and will
continue to put pressure on inflation,” the economist said.
Consumer prices rose to a
16-month high to 5.4 percent in February from 4.9 percent last
January due to costlier oil and food.
Neumann said the second round
effects of high oil and food prices will put more pressure on most
economies since global commodity prices “are so high” that high
inflation rates may last for a longer period.
The BSP is in a tight bind
since there is pressure coming from the US Federal Reserve, which
keeps on cutting interest rates to arrest a recession. Local
monetary authorities also have to prevent the peso from rising
steeply as a result of an influx of foreign funds, which would grow
bigger if the BSP fails to cut rates in lock step with its US
counterpart.
At the Philippine Dealing System,
the local currency on Thursday ended at 40.56 to the dollar,
stronger than Wednesday’s 40.76 finish. Trading volume reached
$500.45 million from the previous $471.1 million.
A trader said the dollar weakened
due to risk aversion following the soft US employment data released
Thursday night.
--Chino S. Leyco And Likha Cuevas-Miel
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