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MANILA - (UPDATED 3:36 p.m.) The Philippine economy is likely to grow at the low end of the government's target for this year, Citi said on Tuesday.
In a briefing, Johanna Chua, Citi chief economist for Asia-Pacific, said the Philippines' gross domestic product would likely expand by 5-5.3 percent.
The government set full-year GDP growth at 5-6 percent, but the National Economic and Development Authority on Monday said it was aiming for expansion of at least 6 percent.
Earlier, Standard and Poor's raised its growth outlook for the Philippines even as it cut or retained its forecast for other Asian economies. The international credit rating firm hiked its forecast for the Philippines to 4.9 percent from the earlier estimate of 4.3 percent.
Philippine GDP growth settled at 6.1 percent in the first half of the year on the strength of remittance-led consumer spending and the services sector, which includes the sunrise business process outsourcing industry.
'One more rate cut'
Chua said lower inflation would make a case for another 25 basis points policy rate cut by the Bangko Sentral ng Pilipinas.
“If inflation were to moderate in the coming months, we wouldn’t rule out a greater incentive for one more rate cut,” she said.
“The Philippines as well as countries like India, Thailand and Vietnam - which already have uncomfortably high inflation at their growth-inflation cycle - are constrained from raising inflation further as a result of QE3. Similarly, central banks predisposed to have sensitivity to asset/property price concerns can be particularly more guarded on policy easing,” Chua said.
The US Federal Reserve earlier said it was predisposed to another round of quantitative easing, its third since the start of the global financial crisis, to bring down joblessness. The so-called QE3 is expected to spur more hot money flows into emerging markets like the Philippines, thus causing their currencies to appreciate.
In this regard, Chua said the peso could strengthen further, averaging as high as 40.8 for every US dollar over the medium term, and hitting 41.5 in the next three months.
She said the upward pressure on the peso would lend a case for the BSP cutting its policy rates further.
“With a more positive risk tone and prolonged low rates, capital inflows could be particularly strong in countries with strong fundamentals and higher yields,” Chua said.
“BSP had already used opportunities of a strong risk-on environment to cut rates amid still robust growth. In the wake of QE3, we’ve seen statements by BSP warning the use of ‘macroprudential tools to manage capital flows,’ but if inflation were to moderate in the coming months, we wouldn’t rule out a greater incentive for one more rate cut,” Chua said.
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