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22 June 2010

Philippine interest rates to wait

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Any change in the Philippines’ key interest rates will wait until the fourth quarter, according to First Metro Investment Corp. (FMIC). The bank said monetary policy will remain on hold for the third quarter and even up to the fourth quarter as inflation remains on target.

“Inflation will remain muted as crude oil prices have stayed below the $70/barrel for two weeks in the latter half of May and agriculture goes back to par performance,” said Roberto Juanchito Dispo, FMIC executive vice president.

He said they are looking at a 50 basis points increase in key interest rates as the Bangko Sentral ng Pilipinas (BSP) gradually withdraws the stimulus package it put in place in July 2009.

“BSP will continue to hold off rate hike[s] to accommodate growth,” he said.

Philippine monetary authorities have been maintaining the overnight borrowing rate at 4 percent and the overnight lending rate at six percent since August last year.

Although growth is threatened by the euro zone crisis, FMIC said the BSP has room to cut rates on special deposit accounts (SDA) if it wants more money to move into infrastructure and housing.

SDA, which offer attractive interest rates, is one of the tools the BSP uses in siphoning off excess liquidity in the system.

In 2007, the BSP changed the rules governing its SDA, allowing trust departments of banks and non-bank government-owned or -controlled corporations access to this facility.

SDA offers interest rates higher than yields on government securities of the same tenors.

With measures such as the SDA, the central bank aims to bring down the growth in domestic liquidity to less than 20 percent.

Following the surprising economic expansion in the first three months of the year, the Philippines’ second quarter kicked off to a good start with money-supply growth expanding by 12.5 percent year-on-year in April, faster than the 10.3 percent growth in the previous month.

On a monthly basis, seasonally adjusted M3 rose 1.8 percent from the 1.1 percent increase in March.


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