Bangko Sentral seen to keep rates unchanged
By Doris C. Dumlao
Philippine Daily Inquirer
11:50 pm | Sunday, December 2nd, 2012
Christmas lights sparkle from construction tower cranes in Bonifacio Global City, Taguig. With the upcoming holiday spending and the budget secretary predicting the start of election-related spending in the fourth quarter, more international institutions have upgraded their full-year GDP forecasts for the Philippines. PHOTO BY ARNOLD ALMACEN
After a surprising 7.1-percent third-quarter economic growth, more international institutions have upgraded their economic outlook on the Philippines to factor in a stronger-than-expected economic momentum.
In a research note, ING Philippines economist Joey Cuyegkeng said growth in the fourth quarter would likely be higher at 6 percent compared to an earlier expectation of 5.6 percent, bringing full-year growth to 6.3 percent. ING was previously expecting a full-year 2012 growth of only 5.9 percent for the Philippines.
London-based think tank Capital Economics also expected the Philippine economy to expand by 6.3 percent this year, upgrading its outlook from the previous forecast of 5 percent. “Reflecting the economy’s resilience this year, we are also raising our growth forecast for 2013 to 4.5 percent, up from 4 percent previously,” Capital Economics said, adding, though, that its outlook for next year was still below the consensus forecast for growth in 2013, which was 5.25 percent ahead of the recent third-quarter data.
For the first three quarters, the country’s gross domestic product grew by 6.5 percent, much stronger than 3.9 percent in the same period last year.
“With upcoming holiday spending and the budget secretary predicting the start of election-related spending in the fourth quarter, full-year GDP looks set to exceed the upper end of the government’s 5-6 percent target,” said New York-based think tank Global Source.
The Global Source research said the economy’s stronger growth, which pushed domestic output further above trend, would likely be “an important consideration as monetary authorities weigh inflation risks and decide on the policy rate in its next meeting on December 13.”
ING’s Cuyegkeng said the third-quarter growth might have erased any chance of a fresh interest rate cut by the Bangko Sentral ng Pilipinas in its next meeting this month. “But watch for some macro-prudential limits from BSP to affect cross-border flows,” he said.
Citing BSP Governor Amando Tetangco Jr.’s speech at a recent forum, he said it was reiterated that cross-border inflows were making monetary policy-making challenging. It was noted that the IMF was expecting about $112 billion in inflows to Asia this year and $182 billion in 2013.
“Hot money” inflows are seen remaining huge next year as the external environment is stabilizing—also an assessment among central bankers that cross-border inflows were coming not just from banks but from corporations.
The BSP is focused on the financial stability that cross-border flows might affect, including threats of asset bubbles, according to Cuyegkeng. “The BSP has a deep tool kit to deal with cross-border inflows. The tool kit includes macro-prudential tools—some of these have been deployed to include prohibition of offshore funds into SDAs [special deposit accounts] and higher capitalization requirements for NDFs [non-deliverable forwards],” the economist said.
Capital Economics said the big challenge for the government would be to sustain a strong investment. “Recent improvements in the country’s business environment as well as an ongoing clampdown on corruption bode well for the future. Moreover, after a slow start, there are promising signs that the government is starting to make decent progress on a series of public-private partnership projects, which should help improve the country’s dilapidated infrastructure and become a driver of growth in the coming years,” the research said.
But the major downside risk comes from abroad, the London-based think tank said.
For the third quarter, exports of goods and services slowed but were still up by 6.9 percent year on year. “This was considerably better than most countries in the region managed last quarter. But with the global economy likely to disappoint in 2013, we still expect the country’s consumer-focused exporters to struggle over the next year,” Capital Economics said.
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