In a research note issued right after the local central bank’s monetary policy meeting last Thursday, Goldman Sachs said the BSP might raise its key interest rates, currently at record lows, by a total of 50 basis points in the second half of the year.
A further 100-basis-point increase in interest rates next year is anticipated by the investment bank, bringing the BSP’s overnight borrowing to 5.5 percent by end-2012 from the current 4 percent.
“The tone of the policy statement has turned more hawkish,” said the February 10 research note written by Goldman Sachs analysts Shirla Sum and Enoch Fung.
A “hawkish” central bank refers to one with a bias for potential monetary tightening as opposed to a “dovish” policy stance.
The BSP has slashed key interest rates by a total of 200 basis points since a “dovish” cycle began in December 2008. It has kept monetary settings unchanged since July 2009.
The emerging hawkish tone, Goldman Sachs said, was implied in the BSP’s statement that “the balance of risks to the inflation outlook has tilted further to the upside, with more risks expected in the near future” and “demand-side price pressures could develop in the near future as actual domestic output continues to expand above historical trend.” It also cited the BSP’s pronouncement that “a sustained strengthening of the peso should help temper the impact of imported inflation.”
Goldman Sachs also noted that the BSP’s new inflation forecast of 4.4 percent for 2011 (up from 3.6 percent) was lower than the investment bank’s forecast of 5 percent but higher than the consensus view of 4.2 percent for this year.
“We continue to expect higher global commodities prices and the close of the output gap to intensify the upward pressures on inflation,” the research paper said.
Output gap refers to the difference between the actual gross domestic product (GDP) or output of an economy and the potential GDP (efficient output). An economy that is running an output gap means it is either overworking (if the gap is positive) or underworking (if the gap is negative) its resources. A positive output gap is widely expected to lead to inflation as production and labor costs rise.
In this case, Goldman Sachs said it expected headline inflation to reach 5.6 percent by the second half of 2011, bringing the annual average inflation to 5 percent. For 2012, headline inflation is expected to average 4.8 percent. It expected core inflation to continue rising gradually over the next two years.
“We also believe the central bank is likely to tolerate appreciation pressure on the currency to mitigate the rising inflationary pressure from global commodity prices to domestic prices. This is also supported by the strong economic fundamentals and balance of payment position,” the research said.
The peso is seen trading at 43 in the next three months and 42 in the next six months before rising to 41 against the dollar over a 12-month period.
Goldman Sachs expects the Philippines to grow its GDP by 5.2 percent this year and 5.7 percent in 2012, which is more optimistic than the consensus view of 5 percent for 2011 and 2012.
No comments:
Post a Comment