Arab Today, arab today philippine cb cuts rate by 25 bps to lift growth
Last Updated : GMT 05:43:19
Arab Today, arab today
Arab Today, arab today

Philippine CB cuts rate by 25 bps to lift growth

Arab Today, arab today

Arab Today, arab today Philippine CB cuts rate by 25 bps to lift growth

Manila - Arabstoday

The Philippine central bank on Thursday cut its main policy rate by a quarter point back to a record low 4.00 per cent, as expected, underscoring its benign view on inflation and the need to keep weak external demand from imperilling domestic growth. Analysts are mixed on the possibility of another rate reduction in coming meetings, with those calling for another cut anticipating that inflation will slow further. Others believe higher fiscal spending and adequate liquidity in the financial system now were sufficient to support growth. The last time the policy rate was at 4.0 per cent was about a year ago. A majority of analysts in a poll had predicted on Thursday’s second consecutive cut in the overnight borrowing rate. The rate cut was in line with the dovish policy stance of most central banks in the region, who are focused on boosting growth as inflation worries wane globally despite volatile oil prices. “The risks to the inflation outlook also appear to be broadly balanced, with the subdued pace of global economic activity expected to temper the rise in commodity prices,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco said in a statement. “The upside risks to inflation stem mainly from volatility (of) oil prices due to geopolitical tensions in the Middle East and from the impact of strong capital inflows on domestic liquidity growth,” he said. SLOWING INFLATION The central bank maintained its forecast for average inflation in 2012 at 3.1 per cent and that for 2013 at 3.4 per cent. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI, which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.  “With cumulative 50 bps pre-emptive cuts under their belt, we reckon that the BSP has bought time to monitor fresh headwinds to inflation, namely higher commodity prices and capital inflows,” said Radhika Rao, economist at Forecast PTE in Singapore. “The inflation outlook remains non-threatening and with government already stepping on the gas to expedite fiscal spending, the need for hastened monetary policy stimulus is also lowered,” she said. The Philippine economy expanded 3.2 per cent year-on-year in the third quarter of 2011, slower than expected due to bad weather, the higher cost of fuel, weak exports and a sluggish construction sector, raising the possibility that the country’s gross domestic product will miss the government’s full-year target of 4.5 per cent-5.5 per cent despite recent stimulus spending. The National Statistical Coordination Board said on Monday that with second-quarter GDP growth revised down to 3.1per cent from an earlier estimate of 3.4 per cent, growth in the January-September period compared with a year earlier was 3.6 per cent. GDP in the third quarter rose 0.3 per cent from the second quarter. On Tuesday, Tetangco said annual inflation in February could ease to below 3 per cent for the first time in more than 2 years, with inflation seen remaining manageable over the policy horizon barring spikes in oil prices. The central bank said inflation was likely to remain at the lower end of the 3-5 per cent target this year, strengthening the case for rates to stay low. It said in its statement that growth in domestic demand remained at a modest pace, reflecting weakness in the country’s exports and the global economy as a whole. The value of Philippine exports in December fell to a two-year low, and sluggish import numbers indicate further weakness ahead in exports.   Diwa Guinigundo, deputy central bank governor, said exports should start to recover in the first quarter at the earliest. The BSP’s decision in February to lower banks’ reserve requirements to 18 per cent from 21 per cent after a review of current rules on the reserves would also help maintain a level of liquidity that would support higher growth. The cut in required reserves, which take effect in April, will release at least 100 billion pesos into the financial system. Manila is hoping that higher spending on major public infrastructure projects would fuel faster growth of at least 5 per cent this year after 2011’s slower-than-expected 3.7 per cent pace.

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Arab Today, arab today philippine cb cuts rate by 25 bps to lift growth Arab Today, arab today philippine cb cuts rate by 25 bps to lift growth

 



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