BSP keeps rates unchanged

By Karen Lema and Erik dela Cruz, Reuters

Posted at Jun 14 2012 07:08 PM | Updated as of Jun 15 2012 03:08 AM

MANILA - The Philippine central bank kept its main policy rate steady at a record low for a second consecutive meeting on Thursday, saying inflation pressures were manageable and market liquidity adequate, bolstering expectations it will stand pat on rates for the rest of the year. 

The monetary authority also expects inflation to remain subdued this year and the next, as it kept its average inflation forecast this year at 3.1 percent and lifted slightly its 2013 estimate to 3.4 percent from 3.3 percent.      

The decision to hold the overnight borrowing rate at 4 percent was widely expected. All but one of 11 analysts in a Reuters poll this week had forecast steady rates, and most expect the central bank to hold for the rest of the year. 

"The Monetary Board believes the benign inflation outlook and robust domestic growth provide adequate room to keep policy rates unchanged," Governor Amando Tetangco said in a statement, adding the total 50-basis-point cut in policy rates and bank reserve requirement reductions earlier in the year were still working their way through the economy.     
But some economists said after the meeting there may be room to cut rates to a new record low with increasing evidence of continued weakness in the global economy.  

Data earlier on Thursday showed overall Philippine exports recovering slightly in April, but a sharp drop in electronics shipments underscored the risk of weakening external demand facing Asia. 

Weak electronics exports

"We think the door is still very much open for more easing and I think the monetary authorities themselves have mentioned this in the past, that they will watch for any development that could lead them to make an adjustment if necessary," said Jun Neri, economist at Bank of the Philippine Islands. 

Exports, which account for about two-fifths of the country's GDP, rose 7.6 percent in April from a year earlier, as growth in shipments of garments and furniture offset a steep drop of 23.8 percent in electronics and semiconductors, the first decline in the sector since December. 

"The key short-term risk to watch out for the growth headwind from Europe. If they can get through this dangerous phase relatively unscathed then a normalisation of rates would quickly rise up in the policy agenda," said Aninda Mitra, economist at ANZ in Singapore. "There is no immediate need for stimulus per se."  

Bucking a global slowdown, the Philippines grew at its strongest quarterly pace in two years in January to March, and the central bank believes the momentum can be sustained with domestic demand seen staying resilient and the government bent on spending more on critical infrastructure. 

Strong domestic demand, underpinned by more than $1.6 billion in monthly remittances from Filipinos abroad, should help offset the weakness in exports, authorities have said. 

Manila ramped up spending in the early part of the year, bolstering economic activity. But the spending level in the first three months of 2012, while 13 percent higher than last year, was still below earlier government projections.  

Analysts in a Reuters quarterly poll in April were less optimistic about the country's growth prospects as they forecast the economy to grow 3.8 percent this year, slower than the government's 5 to 6 percent target.  

Last week, China and Australia cut interest rates to boost domestic demand and help shield their economies from growing downside risks stemming from the deepening euro zone crisis. 

The central bank's policy-making Monetary Board holds a rate-setting meeting every six weeks. It meets next on July 26.