No hurry to change rates – Capital Economics

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After Thursday’s rate decision, an analyst from a London-based research consultancy firm said the Philippine central bank would be in little hurry to adjust interest rates.

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“We continue to think that the policy rate will remain unchanged at 4 percent at least until the end of the year,” Capital Economics Asia economist Gareth Leather said.

Leather said the economy remains in good shape as gross domestic product growth has accelerated over the past year.

The most recent monthly data has also been positive, with remittances and industrial production have both rebounded, while the downturn in exports is starting to ease, he said.

“The upshot is that the central bank is under no pressure to cut rates to boost growth,” he claimed.

There is little to worry about on the inflation front either, he said, with the current low inflation rate is almost entirely due to a decline in fuel and electricity inflation, which should rebound later in the year.

Overall, Capital Economics expects inflation to average 2 percent this year, which is at the bottom of the BSP’s target range.

Leather said the election of Mayor Rodrigo Duterte of Davao City as president on Monday has increased the downside risks to the outlook.

He said a sudden shift in policy or a disruption of the political stability that has characterized the last six years could cause capital inflows to reverse.

“That said, the country’s strong external position (the current account is in surplus and reserves and plentiful) means that the BSP is unlikely to be forced into a series of aggressive rate hikes to support the currency,” he said.

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