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MANILA - UBS on Monday said there is still room for credit growth in the Philippines without stoking inflation.
In a report, the Swiss lender described the Bangko Sentral ng Pilipinas move last week to cut policy rates as “prudent,” as “the Philippine economy is not immune to global headwinds.”
“In the context of international risks to the Philippine economy and low inflation, a reasonable case for policy easing can and has been made by the BSP,” said UBS analyst Edward Teather.
The Swiss bank said Philippine liquidity levels are not yet excessive, with more room for growth despite the double-digit pace over the past year.
“The lack of excess suggests the Philippine economy is still in a sweet spot. Easy monetary policy settings and rich asset valuations can encourage excesses in domestic credit and investment activity, but these have yet to show up in a meaningful way,” said Teather.
Last Thursday, the Monetary Board of the BSP cut its policy rates by 25 basis points to new record lows of 3.75 and 5.75 percent for the overnight borrowing and lending windows, respectively.
Monetary officials expect the resulting decline in commercial interest rates to spur demand for bank loans, thereby causing an overall increase in consumption and investments. They are hoping the increased economic activity to result from the rate reduction would cushion the adverse effects of the prolonged debt crisis in the Euro zone.
The Philippine economy grew by 6.4 percent in the first quarter from a year ago, faster than the 4.9 percent in the same period last year. This kept the economy on track to meeting the full-year growth target of 5 to 6 percent.
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