The combination of weak exports and benign inflation may lead to further monetary easing by the Bangko Sentral ng Pilipinas, according to HongKong Shanghai Banking Corporation (HSBC) Ltd.
“While net exports would not pose a huge drag on growth due to offsetting weak import growth, the Philippines is indeed becoming increasingly even more reliant on domestic demand,” the British banking giant noted in a research report.
“This means that it will need all the help it can get from fiscal and monetary policy,” Trinh Nguyen, Hong Kong-based economist at HSBC, said in a research note released late Wednesday.
On Wednesday, the National Statistics Office reported exports dropped 15.6 percent to $3.74 billion in February as shipments of electronics—the country’s top export product—plummeted by 36.5 percent, the fastest in 14 months.
“While demand for semi-conductors in North America has improved, as indicated by the elevated book-to-bill ratio, electronic exports have not risen accordingly due to waning competitiveness,” said Nguyen.
“The Philippines is indeed losing competitiveness from not just an appreciating peso but also from an unsupportive infrastructure and business environment,” she added.
The HSBC position supports the view of Philippine Exporters Confederation (Philexport) president Sergio Ortiz-Luis that there is a lack of government assistance in terms of funding for product development.
Nguyen said further cuts in the central bank’s Special Deposit Accounts (SDA) are “likely at the next meeting to both save money on sterilization costs as well as to incentivize institutions to invest in more productive activity.”
Given that inflation is benign at 3.2 percent in March, Nguyen noted “the central bank has room to further support domestic demand. A bias for further reduction of the SDA rate is likely at the 25 April monetary meeting.”
On March 14, the Bangko Sentral kept policy rates on hold but cut SDA rates by 50 basis points to 2.5 percent.
In a briefing after the the March 14 policy meeting, Bangko Sentral Assistant Governor Cyd Tuaño-Amador said lowering the SDA yield was intended to push funds out to more productive uses in the economy.
The SDA window is a monetary tool primarily to siphon off money from the financial system—funds that would otherwise stoke inflation.
Last January, the Monetary Board rationalized the rates of its SDA facility to 3 percent.
Policy rates remained untouched since last October at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending. — VS, GMA News
#WearMask #WashHands
#Distancing
#TakePicturesVideos
