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BSP need not to hike rates when Fed does –- HSBC economist

Posted on February 25, 2015

By Joann Santiago

MANILA, Feb. 25 (PNA) — An HSBC economist said the Bangko Sentral ng Pilipinas (BSP) does not need to adjust its key rates once the Federal Reserve does since the former has the leeway to maintain its rates.

”The Philippines has a surplus economy right now and the BSP does not need to shadow the Fed in this particular cycle,” said HSBC Asian Economic Research co-head Frederic Neumann in a briefing Wednesday.

The Federal Reserve is widely expected to start hiking its rates in the middle of this year as the world’s largest economy continue to turn in positive economic figures.

Neumann, on the other hand, forecasts possible hike in Fed rates to likely happen in October this year to be followed by a gradual increase in the coming months as aggressive hikes is seen to result to sharp rise of the US dollar and in turn hurt the US economy.

Any movement in the Fed rates is expected to attract more capital inflows into the US and away from other economies, thus, other central banks are also open to similar movements in their key rates.

Neumann said the BSP “has more room to maneuver” given the domestic economy’s fundamental strength.

This fundamental strength is what made the country different from other economies vis-à-vis the recent economic crisis and volatilities caused by developments in advance economies.

Last year, the BSP increased its key rates by a total of 50 basis points unlike other central banks that hiked their rates more than these.

To date, the BSP’s overnight borrowing or reverse repurchase (RRP) rate is at four percent and the overnight lending or repurchase (RP) rate is at six percent.

Instead of touching solely the key rates, the BSP instead implemented other macro-prudential measures such as hike in the interest rates of its special deposit account (SDA) facility by 50 basis points to 2.5 percent as well as the increase in banks’ reserve requirements.

Relatively, the HSBC economist said putting in more infrastructure is the way to go for the Philippines.

He said President Benigno Aquino III has to really put in the groundwork for infrastructure projects even as investors do not put money yet.

He said implementation of these infrastructure projects should be the focus of the next administration to sustain the current growth trend of the Philippine economy.

He said what Aquino was able to do is to consolidate the country’s economic records, thus, the next president “needs to get the ball rolling.”

Also, he cited the need for Philippine officials to be “very smart” on what industry and investors to focus on as investors continue to move their funds from China.

”One thing we would look in the next administration is to be a bit more strategic on getting investors and building it from there,” he said.

Neumann said shipbuilding is one sector the Philippine can prioritize on since it has been known for this and because of the employment that it creates.

He said there is a need to prioritize on addressing what investors are looking for when they invest in a country to be able to ensure that capital inflows will continue and help buoy the economy.

”The experience in Asia is that FDs are great growth drivers,” he added. (PNA)

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