MikeLigalig.com

by pna

A central bank official expects the domestic economy to remain strong in the first quarter of 2013.

”The economy, based on leading and co-incident indicators, is showing that it could still be on an expansion phase for the first quarter,” BSP Assistant Governor Cyd Tuano-Amador told reporters Thursday.

Amador declined to give figures but said the expansion is relative to the domestic economy’s trend growth of 4.5 to 4.7 percent in recent years.

“It’s on a comfortable range,” she said.

Last year, the economy expanded by 6.6 percent, higher than the five to six percent target of the government and year-ago’s 3.7 percent.

For the last quarter alone the growth, as measured by gross domestic product (GDP), rose by 6.8 percent.

The expectation for the sustained growth of the domestic economy made Amador believe that even as the central bank continues to cut the rate of its special deposit (SDA) facility the economy “can still absorb” extra liquidity and will not cause inflationary pressures.

“We think that even if we flush funds out, the idle funds out the economy can still absorb it. With some lag but it can still absorb it,” she said.

On Thursday, central bank’s policy-making Monetary Board (MB) cut by another 50 basis points (bps) the interest rate of the SDA facility to 2.5 percent. This is the second consecutive 50 bps cut in the SDA rate after the same decision last January.

Amid the fresh cut in the SDA rate, the Board again kept the policy rates. To date, the overnight borrowing rate is at record-low of 3.5 percent and the overnight lending is at 5.5 percent.

This decision is expected to further make the domestic economy remain attractive to foreign investors due to the interest rate differentials.

Interest rates in advance economies remain at almost zero-level while those in emerging economies like the Philippines are higher.

The decision to maintain the BSP’s key rates is expected to boost foreign portfolio investments, otherwise known as hot money due to the speed it comes in and out of the country, because of interest rate differentials.

These investments are normally placed in the equities and bond market.

As of the week ending February 22, 2013, net hot money inflow reached US$ 1.43 billion, nearly three times the US$ 487.94 million net inflow on the week ending February 24 last year.

Total inflows to date reached US$ 4.48 billion, higher than the US$ 2.51 billion same period last year. Total outflows is also higher at US$ 3.05 billion against year-ago’s US$ 2.02 billion.

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