Moderate Q3 growth gives BSP room to keep low rates – Citigroup

Published by rudy Date posted on November 30, 2009

MANILA, Philippines – American banking giant Citigroup said the lower-than-expected economic growth registered in the third quarter of the year gives monetary authorities leeway to maintain its current policy stance.

Citi economist for the Philippines Jun Trinidad said in a research note that the marginal growth of 0.8 percent registered in the third quarter gives the Bangko Sentral ng Pilipinas (BSP) more room to keep its key policy rates at record lows.

“Looking forward, the lethargic pace of recovery doesn’t raise the urgency to undertake an exit strategy soon,” Trinidad stressed.

According to him, overnight rates could have been eased further earlier to further accelerate the recovery of the domestic economy that was battered by the global economic slump.

“Hindsight suggests that overnight rates could have been cut further to lift demand given a pace of recovery that’s way below potential,” he added.

Since December last year, the central bank slashed its key policy rates by 200 basis points until July this year. This brought the overnight borrowing rate at a record low of four percent and the overnight lending rate at six percent.

Citi warned that excessive liquidity risk owing to election spending next year would still be in the radar screen of policymakers and may prompt some action.

“But raising policy rates would be last in the sequence and may be pushed back to third quarter next year rather than our timetable of May or June next year,” Trinidad said.

Earlier, BSP Governor Amando M. Tetangco Jr. said monetary authorities are likely to keep its key policy rates at record lows and there was no urgency to implement an exit strategy due the lower-than-expected gross domestic product (GDP) growth recorded in the third quarter.

Tetangco said the central bank’s Monetary Board could maintain its current policy stance “given the within-target range outlook for inflation for 2009 and 2010.”

The BSP sees inflation averaging 3.38 percent or well within the 2.5 percent to 4.5 percent target for this year and 4.2 percent or slightly below the target of 3.5 percent to 5.5 percent next year.

Consumer prices averaged 3.2 percent from January to October this year compared with 9.4 percent in the same period last year.

The country’s GDP growth, data from the National Statistical Coordination Board (NSCB), slackened to 0.7 percent in the first nine months of the year from 4.2 percent in the same period last year.

This after the GDP expansion plunged to 0.8 percent in the third quarter of the year from 4.6 percent in the same quarter last year and from the revised 0.8 percent in the second quarter.

The National Economic and Development Authority (NEDA) expected the GDP in the third quarter to expand between 1.6 percent and 2.6 percent.

However, Tetangco said economic managers believe that the projected economic growth this year of between 0.8 percent and 1.8 percent is still achievable despite the slower-than-expected expansion in the third quarter. –Lawrence Agcaoili (The Philippine Star)

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