|
THE
monetary authorities decided to cut policy rates by 25
basis points effective Friday, setting interest rates at
a 15-year low and putting the entire economy on a
potentially higher growth plane than originally
forecast.
The
decision scaled back the rates at which the Bangko
Sentral ng Pilipinas (BSP) borrows from or lends to
banks—from 5.75 percent and 7.75 percent six weeks
earlier to only 5.5 percent and 7.5 percent,
respectively.
This
means lower cost of funds for individuals and businesses needing financing, and presents a
huge upside for the economy to speed ahead faster than
the 7.3-percent growth in terms of the gross domestic
product (GDP) in the first half.
The
projected GDP this year was earlier feared to slow down
in the second half, in step with the feared slowdown of
the US economy, the country’s main export market.
“In
deciding to cut policy rates further, the monetary board
considered continuing benign inflation outlook.
“Inflation is expected to fall well below the 4-percent
to 5-percent target range for this year and to remain
within the lower bound of the 4 percent plus or minus
1-percentage-point target in 2008,” BSP Governor Amando
M. Tetangco Jr. said at the post-meeting briefing on
Thursday.
His
deputy, Diwa C. Guinigundo, stressed that the rate,
though widely expected, was adopted more in response to
the favorable inflation outlook rather than as incentive
for people to take out more bank loans than before.
“This
was not meant to increase credit response. This was more
in response to the favorable inflation outlook,” he told
reporters.
Latest
data show bank lending still on the rise year-on-year to
6.2 percent in September, slower than the 7.1-percent
growth posted the previous August.
“This
[rate cut] was meant to preempt any possible slowdown in
the global economy, which could later lead to “lower
credit availment,” Guinigundo said.
Foreign
experts like those from the Swiss financial services
firm UBS and local economists like former Finance
undersecretary Romeo Bernardo earlier anticipated the
rate cuts as the best way to handle the “happy problem”
of surging foreign inflows and billion-dollar
remittances coming from overseas Filipinos.
The BSP
on Thursday reported nine-month remittances surging at
an annual clip of 15 percent to $10.5 billion,
potentially making monetary management that much harder
over the 18 to 24-month policy horizon.
Surging
inflows allow the BSP to build up its foreign-exchange
reserves, but this has a nasty reputation of adding peso
liquidity and possibly upset the carefully calibrated
inflation-targeting framework.
Such
inflows also tend to make the peso stronger and hurt
small-and medium-scale exporters along with the families
of overseas workers whose dollar earnings have
considerably weakened with each rise in the value of the
peso.
The
cuts, therefore, were meant as disincentive for foreign
fund managers realizing fewer returns for their effort,
funds that have the potential to push the as-yet benign
inflation outlook into more dangerous territory just
beyond the policy horizon.
The cuts
also show how the policymakers resolved the interplay
between the social impact of the stronger peso, the
economic consequences of an expanded money supply and
the direction of prices that affects everyone that needs
services or goods in this country. |
