‘Blessings’ see interest rates’ stay

Published on Wednesday, 05 December 2012 21:34

Written by Jun Vallecera / Reporter

What can be called as the twin blessings of high growth and low inflation are favorable forces likely convincing the Bangko Sentral ng Pilipinas (BSP) to stay the course of monetary policy and keep local interest rates where they are.

BSP Governor Amando M. Tetangco Jr. himself  hinted on it in a text message on Wednesday as the government released official data showing that inflation eased to only 2.8 percent in November from 3.1 percent in October.

This represented the third time in as many months when inflation slowed, this time on account of abundant food supply, according to the National Statistics Office.

According to Tetangco, price movements in November proved well-behaved and closer to the low end of forecast inflation ranging from 2.7 percent to 3.6 percent.

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“This and improved domestic demand conditions support the view that policy-setting remains appropriate for the time being,” he said of the practical impact of the BSP having set the rate at which it borrows from (3.5 percent) or lends to (5.5 percent) banks at present.

Concern over incipient asset-price bubbles forming has left the interest- rate market on edge, reading into each and every statement from Tetangco for signs of whether it was time to push the monetary levers upward again.

The BSP chief  said they will continue to keep a keen eye on the impact of the cumulative 100 basis-point cut in the policy rates on credit demand and liquidity growth “to see if they are still in line with domestic absorptive capacity.”

Foreign inflows-driven liquidity growth has allowed bank loan activities to post double-digit growth rates for months on end, fuelling apprehension that the credit market may already be heating up and thus the need to put a damper.

HSBC economist Trinh Nguyen said by e-mail that the 7.1-percent acceleration in local output in the third quarter and inflation of only 2.8 percent in November due to abundant food supply were likely to offset the unfavorable impact of factors as strong domestic demand, weather events and so-called upside risks to inflation that could push the BSP to raise domestic interest rates instead.

“Inflation decelerated despite strong growth. This reflects slowing food prices and contained oil prices. However, the BSP will likely hold rates steady to the effect of the 100 basis-point cut,” Nguyen added.