Thursday, June 13, 2013

Philippines holds rates on balanced inflation risks

    The Philippines' central bank held its main policy rates steady, along with its Special Deposit Accounts (SDA), saying inflationary risks were evenly balanced and domestic growth was robust.
    The Central Bank of the Philippines (BSP) kept the rate for its overnight borrowing, or reverse repurchase facility (RRP) at 3.50 percent and the rate on its overnight lending, or repurchase facility (RP), at 5.50 percent. Its last rate change was in October 2012 when it cut rates by 25 basis points.
    The BSP said it would pay close attention to price and output conditions as well as asset markets to ensure its rates were consistent with price and financial stability while supporting economic growth.
    While keeping its main rates steady this year, the central bank has been cutting the SDA rate by 150 basis points - most recently by 50 basis points in April - to make it less attractive for foreign funds to park their money at the central bank. This has put upward pressure on the peso and not resulted in the funds being used to stimulate economic activity
    But since early May, and especially since May 22, when U.S. Federal Reserve Chairman Ben Bernanke said the U.S. may soon start to wind down its asset purchases, the peso - along with most other emerging market currencies - has weakened sharply.
    A drop in the peso can fuel inflation through higher import prices, but the BSP said the inflationary environment remained benign and inflation is forecast to remain within target for 2013 until 2015.
    "The modest pace of global economic activity could continue to temper the broad outlook for inflation," the BSP said, adding that potential upside pressures could arise from power rate adjustments and the upward impact of sustained capital inflows on domestic liquidity.
    It added that maintaining rates would also allow the central bank time to assess the impact of its recent fine-tuning and global financial market developments also support and unchanged policy stance.
    The peso has depreciated 4.4 percent since May 22, trading at 43.01 to the U.S. dollar today. In 2012 the peso rose by almost 7 percent against the dollar but since mid-March it has been falling.
    In May, the Philippine inflation rate was unchanged at 2.6 percent from April, well below the central bank's target of 4.0 percent, plus/minus one percentage point. In April the BSP raised its forecast for 2013 inflation to 3.3 percent.
    The Philippines' Gross Domestic Product expanded by 2.2 percent in the first quarter of this year, up from 1.9 percent in the fourth quarter, for annual growth rate of 7.8 percent, up from 7.1 percent.
    The government has forecast 2013 growth of 6-7 percent, stable from 2012's 6.6 percent.


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