ASEAN KEY DESTINATIONS
Rates to remain low in Philippines
HSBC said the Bangko Sentral ng Pilipinas (BSP) may keep rates on hold until next year amid the slower-than-expected economic growth in the second quarter and strong hot money inflows.
In a commentary, HSBC said the policy-making Monetary Board will be in a more accommodative mood when it meets on Thursday amid concerns of, one, the still elevated inflation that "is a little too high for comfort" based on the new Consumer Price Index measure.
The July inflation reading was at 5.1 percent, or still above the central bank's target range of 3 percent to 5 percent.
HSBC said inflation will likely ease in the coming months.
"We believe central bank officials can afford to relax for the time being. We had initially penciled in a few more rate hikes by year-end. That looks a little bit of a stretch now. Instead, we are changing our call to a hold until the second quarter of 2012," Trinh Nguyen, HSBC economist, said.
She also said excess liquidity in the system and high portfolio inflows are also worth noting, as shown by the low three-month Philippine inter-bank offered rate of below 4 percent.
"Given the still ample amount of liquidity in the Philippine financial system, the BSP may push up reserve requirements further at some stage, even if, at 21 percent, these are already unusually high by international standards," Nguyen said.
If the US Federal Reserve calls for another round of quantitative easing, the BSP may deem reserve requirement ratio increases more effective than outright interest rate hikes.
"All in all, inflation and concerns about excess liquidity should play a factor in the BSP's Monetary B oard meeting next Thursday. However, we believe that the mounting global economic growth worries will fully counter-weight these concerns and prompt monetary officials to stay on hold for a while. Expect policy rates to rise only in the second quarter of next year. Plenty of time to sit back and relax," Nguyen said.
She warned that growth will unlikely rebound soon given the stiffer global demand. HSBC cut its 2011 growth forecast from 5.2 percent to 4.3 percent.
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