Subdued Inflation to Allow for Economic Growth

Published: February 3, 2015 | Updated: December 13, 2019 | Posted by: Moneymax | Personal Finance


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As the first quarter of the year enters its second month, the lowered price of fuel is likely to be cause for monetary authorities – such as the Bangko Sentral ng Pilipinas – to ease up on various policies and allow for further economic growth.

What this means, according to financial giant JP Morgan & Chase, consumers will likely benefit more should the BSP ease policy settings. The bank also stated that their economics team expects the oil prices to keep inflation in check and have “penciled in” cuts to reverse repurchase (RRP) and special deposit account (SDA) rates in the second half.

A note to clients over the weekend also explained that they believe that “this bodes well for the country amid diverging global monetary policies and uncertainties surrounding expectations of a US Fed rate hike.”

BSP Governor Amado M. Tetangco, Jr. also said that a benign outlook on inflation for the year would also allow the central bank to keep rates steady. The BSP has also declared that January presented a decelerated inflation rate, its apparent slowest in the last half-decade. The bank is set to have its first policy stance meeting on the 12th of February and may discuss cutting down the benchmark rates for the SDA by 25 basis points, and may expect a similar cut for overnight borrowing rates – currently at 4 percent.

With these benchmark rates cut, interest rates across the country may also be lowered, allowing for a greater boost in government spending.

JP Morgan further stated that thanks to cheaper oil, the BSP currently enjoys greater monetary flexibility and that the cheaper oil prices may help improve the country’s import bill, lowering overall costs for importers.

The Philippines as a whole is expected to reap the benefits of this, boosting the country’s balance of payments (BOP) by as much as $2.5 billion should the economy’s trade deficit narrow in the coming months. An increased BOP inflow will strengthen the Peso and allow the BSP’s foreign exchange reserves to remain stable.

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