The Philippines remains in a sweet spot with a lot of room for investment and economic activities, the Union Bank of Switzerland (UBS) said in its latest report. “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,” UBS said in a report released last week following the 25-basis points reduction in key policy rates by the Bangko Sentral ng Pilipinas (BSP).
On Thursday, the BSP reduced the overnight borrowing rate to a low of 3.75 percent and the lending rate to 5.75 percent on concerns over global growth risks. UBS raised the question as to whether it was necessary for monetary authorities to raise rates. It said that easing monetary policy may branch credit but this has yet to be seen. UBS also said the Philippine economy is not immune to the global external risks such as the crisis in the euro zone.
“At the same time, 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,” UBS said. It said that earlier BSP monetary policy should be good for asset prices.
UBS said it expects the policy rate to be at 3.75 percent for the overnight borrowing rate and the peso at 42 to the dollar by yearend.
The inflation rate dipped to 2.8 percent in June from 2.9 percent in May, according to latest data from the National Statistics Office. The June inflation brought year-to-date inflation at three percent, falling at the lower end of the central bank’s three to five percent target for 2012.