BSP keeps key policy rates at historic low levels The Bangko Sentral ng Pilipinas Thursday maintained its key interest rates at historically low levels to sustain the country’s robust growth over the short to medium term. Following a meeting of the Monetary Board, BSP Deputy Governor Nestor Espenilla Jr. said in a press conference that there was no pressure for the central bank to reverse its current policy stance, citing the favorable inflation environment. Espenilla, who currently serves as officer in charge of the BSP, said the Monetary Board saw it prudent to keep its overnight borrowing and lending rates at 4 and 6 percent. “The Monetary Board’s decision was based on its evaluation that monetary policy settings remain appropriate as inflation forecasts continue to be within the government’s range,” Espenilla said. The record low policy rates have been in place since July 2009. The rates had been brought down to help the country avoid a recession last year when the global turmoil was said to have reached its peak. The low rates of the BSP resulted in a drop in commercial bank lending rates which, in turn, spurred demand for loans. An increase in bank loans tends to support more consumption and investment activities. BSP officials said these were factors that allowed the country to steer clear of recession. The strong recovery of the economy this year has led to speculations that the central bank would soon raise its key policy rates. The economy expanded by 7.9 percent in the first semester—the fastest pace in more than 30 years. Moreover, some economists noted that keeping interest rates too low for too long could substantially boost demand and lead to a faster rate of rise in the prices of goods and services. But central bank officials said that, despite strong growth in the first semester, there was no need to raise interest rates so soon. Inflation has so far remained benign, settling at a 10-month low of 3.5 percent in September. It is projected to stay that way over the short to medium term. According to officials, inflation has remained within benign levels, despite increasing demand, because of an unusual rise in investments, which tends to increase supply. The impact of rising demand on consumer prices is therefore offset by an increase in supply, they explained. The government aims to keep inflation within a range of 3.5 to 5.5 percent this year, and within 3 to 5 percent next year until 2014. The Bangko Sentral ng Pilipinas yesterday reported that the gross international reserves (GIR) reached $53.54 billion as of end-September, up 26 percent from $42.53 billion posted in the same period a year ago. Central bank officials said the record GIR level further raised the confidence of foreign creditors in the Philippines. A closely watched economic indicator, the GIR determines a country’s ability to engage in commercial transactions with the rest of the world. Key transactions include payment of imported goods and services and settlement of debts denominated in foreign currencies. In a statement, the BSP said the latest amount of foreign reserves would be enough to cover 9.4 months worth of the country’s usual imports. It is also worth 5.3 times more than the country’s cumulative debt maturing within a year. According to the central bank, one significant driver of the GIR in September was the government’s sale of $1 billion worth of global bonds. There were also the proceeds from various loans the government took out, including that from the World Bank. The GIR could have been higher had the government accepted more bids for the global bonds, which were highly oversubscribed. Tenders for the bonds reached $13 billion, but treasury officials said the government decided not to borrow more than what was programmed. The increase in gold prices in the world market likewise boosted the GIR, which is made up of foreign currencies as well as gold holdings. The GIR was also helped up by the BSP’s income from its investments in foreign securities, mostly US treasuries. |
U.S. Stocks Decline as Shares of Commodity Producers Retreat U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for a second day, as mining and energy companies fell after commodity prices erased gains and PepsiCo Inc. led consumer-staples shares lower. Chevron Corp. and Freeport-McMoRan Copper & Gold Inc. paced losses in commodity producers as a rebound in the dollar drove down oil and metals prices. PepsiCo dropped 3 percent after lowering the top end of its annual profit forecast. Marriott International Inc. slumped 5.8 percent, the biggest decline in the S&P 500, after the largest U.S. hotel chain missed earnings projections. The S&P 500 dropped 0.2 percent to 1,158.06 at 4 p.m. in New York. The index has fallen two straight days after closing at the highest level since May. The Dow Jones Industrial Average lost 19.07 points, or 0.2 percent, to 10,948.58. The Dollar Index, which gauges the currency against six major peers, rose 0.1 percent to rebound from its lowest level since January.
The difference in yields between bonds and 30-year Treasury Inflation Protected Securities, an indication of trader expectations for inflation known as the break-even rate, reached 2.294 percentage points yesterday, the widest since June 29. It touched 2.287 percentage points today. Two-year yields reached the lowest ever, setting or matching a record for a fifth consecutive day, before data tomorrow that are forecast to show a rise in the unemployment rate, pointing to a slowing recovery. “The market is starting to price in risks of higher inflation down the road, but there is still more to come,” said Michael Pond, an interest-rate strategist in New York at Barclays Plc who was the top-rated analyst of TIPS in Institutional Investor magazine’s annual poll. Barclays is one of 18 primary dealers that trade with the central bank. “The Fed is telling you they want higher inflation.” The yield on the 30-year bond rose 3 basis points, or 0.03 percentage point, to 3.70 percent at 10:24 a.m. in New York, according to BGCantor Market Data. The price of the 3.875 percent security due in August 2040 fell 18/32, or $5.63 per $1,000 face amount, to 103 1/8. Benchmark 10-year note yields slipped 1 basis point to 2.38 percent. They reached 2.3552 percent yesterday, the lowest level since January 2009. The two-year note yield fell 2 basis points to 0.3591 percent and touched 0.3513 percent, the lowest ever. |
Crude Oil Futures Slip From a Five-Month High in New York as Dollar Gains Crude oil tumbled from a five-month high after the dollar rebounded versus the euro and U.S. equities declined, wiping out an early advance. Oil fell the most in three weeks as the greenback climbed against the common currency for the first time in three days, reducing the appeal of commodities as an alternative investment. The Standard & Poor’s 500 Index slipped for a second day as raw- material prices dropped, sending producer shares lower. “The dollar and equities are the main drivers,” said Kyle Cooper, director of research for IAF Advisors in Houston. “What happens with inventories and demand isn’t that important.” Crude oil for November delivery fell $1.56, or 1.9 percent, to settle at $81.67 a barrel on the New York Mercantile Exchange. It was the biggest decrease since Sept. 16. Oil reached $84.43 earlier today, the highest level since May 4. Futures are up 17 percent from a year ago |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
Jonathan Ravelas
Chief Market Strategist
(632) 858-3145
Rhys Cruz
Junior Researcher
(632) 858-3001
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