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By Maricel E. Burgonio, Reporter
THE Bangko Sentral ng Pilipinas (BSP) said the
country’s economic expansion would be sustained if its US
counterpart, the Federal Reserve, discontinues its policy of easing
interest rates.
“The suggestion that the move would be the end
of the Fed’s current easing cycle would have important
implications for emerging economies like the Philippines as it feeds
into risk aversion biases of investors and ultimately the direction
[of] capital flows between developed and emerging markets,” BSP
Gov. Amando M. Tetangco Jr. told reporters.
He said the Philippines would benefit from
foreign portfolio inflows, strengthening the peso, which has been
falling vis-à-vis the dollar due to risk aversion.
“The market has priced in a 25 basis points
cut by the US Fed. For our part, we will remain focused on ensuring
a stable macro environment as a buffer to such changes by keeping
inflation expectations well moored,” Tetangco said.
The BSP earlier said inflation may exceed its 3
percent to 5 percent target this year. Some bank analysts expect
inflation to peak at 8.5 percent to 9 percent.
Demand for oil and food remains strong, driving
commodity prices to increase. Food alone accounted for 55 percent of
the country’s inflation basket.
Tetangco said the BSP is cautious about the
second round effects of inflation, such as wage adjustments and
power rate increases, which would affect the Monetary Board’s
decision on interest rate policy.
Consumers’ electricity bills in areas covered
by the Manila Electric Co. shot up this month, while regional wage
boards have convened to deliberate on proposals to raise the minimum
daily wage.
In a report, Deutsche Bank said lower economic
growth will pull down profitability at local lenders.
“For Philippine banks, reported first quarter
2008 profits could look quite bad on a year-on-year basis while we
tend to eschew quarterly forecasting. The full year 2008 estimates
for banks under coverage already incorporate declines in trading
profits,” Rafael Gachitorena, a research analyst with Deutsche
Bank, said.
Risks to the local banking sector include a
slowdown in economic activity, leading to weaker than expected loan
growth.
Another risk is increased competition, which
could put further pressure on margins and profitability.
The Philippine economy is expected to grow at a
slower pace this year compared with last year’s three-decade
record, as inflation peaks. Higher-than-expected consumer price
increases usually force the BSP to raise interest rates to limit the
amount of money used to generate economic activity.
The government earlier forecast the economy, as
measured by the country’s gross domestic product (GDP), to expand
by 6.7 percent to 7 percent this year from 7.3 percent last year.
In its latest financial system report, the BSP
had said banks’ net income grew 9.5 percent to P62.9 billion last
year from P57.4 billion in the previous year. This was supported by
double-digit expansion in interest income and fee-based services.
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