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MANILA - HSBC said Philippine monetary authorities will hold key interest rates steady in light of the faster economic expansion in the first quarter and the uptick in inflation last month.
In a research note, the London-based bank said the Philippines, along with Korea, New Zealand, Indonesia and the US, will need to ease their respective monetary policy amid a slowing global economy, with one eye on the elevated commodity prices.
The Philippines grew by 5.9 percent in the second quarter, pushing the first-semester expansion to a "stellar" 6.1 percent. These numbers indicate that the country will likely meet the government target of 5-6 percent growth for the year, HSBC said.
"The BSP can shift gears to focus on rising inflationary pressures because monetary officials already made timely adjustments to policy rates in early 2012," the bank said.
In the first quarter, the BSP eased its policy rates by 50 basis points to spur domestic consumption. This was followed by a 25-basis point cut in July.
HSBC said latest global data show that external demand will remain low and likely affect trade and remittances towards the end of the year. However, this will not be enough to push the BSP to cut its rates further.
"The BSP has fulfilled its obligation to boost the economy, especially with easing measures filtering through to stimulate private consumption and fiscal spending accelerating in the coming months," HSBC said.
For the rest of the year, monetary authorities will be closely monitoring prices, which remain elevated, short-term supply shocks, and domestic demand, the bank said.
In addition, real interest rates are low, which could fuel an asset bubble.
HSBC said there is enough room to ease on the fiscal side given the current deficit level and spending hike of 10.5 percent for next year.
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