PHILIPPINE NEWS SERVICE — Investment bank DBS of Singapore expects Philippine monetary authorities to slash key policy rates by 25 basis points this week due to solid economic fundamentals, lower oil prices, stable inflation and a strong peso.
DBS said in a research note dated Jan. 21 that the policy-setting arm of the Bangko Sentral ng Pilipinas would likely remove the tiering system adopted on Nov. 2 and reduce key policy rates by 25 basis points in a meeting tomorrow.
“We expect BSP to cut rate by 25 bps coupled with the removal of the tiering system in the forthcoming policy meeting this Thursday,” the investment bank said.
The Citigroup, a leading global financial services company, meanwhile, expects economic growth at 5.7 percent this year, higher than last year’s, despite a slower global economic growth.
In a press briefing, Citibank Asia Pacific’s head of research communications Lim Ai Meun said the bank saw global economic growth at 3.4 percent this year, slower than last year’s 3.9 percent.
“We are going to see a slowdown this year, a very modest slowdown and it is something that the markets will not be spooked by,” Lim told reporters.
She warned of volatilities in emerging markets which reported an average return of 33.2 percent last year.
“Volatility is a feature of emerging markets,” Lim said. “We expect a lot of hiccups along the way. Volatility will be there, including the Philippines because there’s the election scare.”
Citigroup also expects the peso to end the year at around 48 against the US dollar although it could weaken in the runup to the May elections to 49.50 to 49.85.
DBS cited the strengthening of the peso against the US dollar, lower inflation and declining oil prices as the main factors paving the way for the reduction in key policy rates by the Monetary Board.
According to the research note, increased liquidity from strong Filipino workers overseas remittances does not pose immediate inflationary threat as banks are soaking up a bigger slice of the extra cash.
“As such, BSP would need to cut rate to stimulate the much-needed domestic demand. It’s a fine balancing act of keeping inflation in check while trying to stimulate growth,” DBS said.