No need to match Fed rate moves – HSBC

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Banking giant HSBC said the Philippines does not need to follow any interest rate tightening in the United States given its strong fundamentals, which are likely to cushion it against the structural headwinds now faced by the global economy.

In a press briefing held in Makati City on Wednesday, Frederic Neumann, managing director and co-head of HSBC Asian Economic Research, said despite signs of improved activity in the US, stabilization of activity in Europe and a rebound in the Japanese economy, the world is still facing severe headwinds.

“Prices continue to decline. Even in Asia, a number of economies are experiencing deflation. This story is not just about oil prices but also reflective of very weak global growth. We think that the slow growth environment will remain for at least another two or three years because of some structural headwinds that the global economy faces,” he said.

These headwinds include record levels of debts everywhere, the aging population in advanced economies, dragging government reforms and a slowing Chinese economy.


Despite the negative impact of these developments on other countries, such headwinds represent an unusual scenario for the Philippines, Neumann said.

“In the Philippines in particular, there are no inflation pressures coming through, [and]oil prices likely will stay low. So commodity prices, energy in particular, will remain low and that’s positive for oil-importing countries like the Philippines, whereas in other economies, it’s negative,” he explained.

The HSBC economist said the weaker global backdrop in many ways helps the Philippines right now rather than hurts it.

With this, he said the Bangko Sentral ng Pilipinas (BSP) will have room to keep its policy rates steady for the whole of 2015 or even until 2016.

“Interest rates are unlikely to go up anytime soon. That means funding cost will be extremely benign. The Philippines is in record low interest rates for a while. We think the Philippines will keep interest rates on hold for the time being . . . Not joining the easing cycles anywhere else anytime because there is no sign that inflation will be coming up,” he explained.

Neumann said countries like the Philippines do not have to match Fed hikes, which are expected to happen by October, because local fundamentals are so strong.

He stressed that the Philippines is such a surplus economy right now that it can allow the currency to weaken a little bit.

“The BSP can afford not to hike even if the Fed hikes because there’s no risk of debt crisis. It doesn’t need to shadow the Fed in this particular tightening cycle,” he concluded.

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