UBS sees BSP keeping interest rates steady

Brisk credit expansion and inflation risks will likely keep the Bangko Sentral ng Pilipinas (BSP) from raising its interest rates in the near future, according to an economist of Union Bank of Switzerland (UBS). In the latest UBS dossier on Southeast Asia, Edward Teather said economic policy harmonization with the Association of Southeast Asian Nations (ASEAN) is also a factor the BSP is weighing along with the current data on money flows. "We do not forecast an easing of policy due to the buoyancy of credit growth and the attendant inflation risks across ASEAN and we do expect monetary tightening to return to the ASEAN policy agenda in 2012," Teather said. The Philippines has committed to bringing down its non-tariff barriers (NTBs) by 2012, according to the ASEAN Free Trade Area (AFTA) schedule. Elimination of the NTBs will make the country’s external trade more sensitive to monetary impact policy on foreign exchange. Brisk bank lending Latest BSP data show that local banks have lent industries more than P2 trillion per month since November last year. Last June, total loans were up 18.8 percent to P2.59 trillion, the highest level since April 2009. "Accordingly, we expect Thai, Malaysian, Indonesian and Philippine policy makers to either allow currency weakness or resist currency appreciation long as leading indicators for trade and manufacturing sectors remains weak," Teather added. Philippine exports were down by 10 percent last June and grew by only 4 percent in the first six months. "Recent inflation data has been slightly above target on the newly issued consumer price index gauge, but the central bank has recently played down this statistic in favor of the assessment that forward looking assessments of inflation are well behaved," Teather said. — ELR/VS, GMA News