Hongkong and Shanghai Banking Corporation(HSBC) Economist Sees Policy Rate Easing Among Asian Central Banks This 2016

An economist of Hongkong and Shanghai Banking Corporation(HSBC) forecasts central banks in Asia to ease rates this 2016 to support growth amidst the drop in exports, with the adjustment in the Philippines seen in the second quarter.

“A sharp deterioration in January exports points to further downside risks for the regional growth outlook,” HSBC Co-Head of Asian Economic Research Frederic Neumann said in a research note.

Growth remains delicate and the on-going tightening of Federal Reserve rates is not of any help, he said.

Fed Chairman Janet Yellen, in her recent annual speech before the US Congress, cited the improvement in labor situation but also noted the tighter financial condition globally.

Thus, she stressed the need to monitor the situation, which markets took as a delay to further hikes in the Fed rates after the 0.25 percent increase in December 2015.

Analysts project moderate growth for Asian economies this year due mainly to weak exports.

Philippine exports contracted by three percent in December 2015 to USD 4.7 billion from -3.2 percent same period in 2014 after the negative growth of six of the 10 major commodities of the country namely apparel and clothing accessories, chemicals, other manufactures, machinery and transport equipment, metal components, and electronic equipment and parts.

However, electronic products, which is the country’s top export with a share of 54.3 percent of the total, rose by 6.4 percent last December.

HSBC eyes a 5.9 percent output, as measured by gross domestic product (GDP), for the Philippines this year and 5.8 percent for 2017.

The country posted a 5.8 percent growth in 2015, still strong in the region but could have been higher if not for drop in net exports.

The study said the country was “a relative outperformer in the region” last year, lifted by infrastructure investment and private consumption.

It said that both services and industry backed the economy and countered the negative developments on agriculture output due to the El Nino phenomenon.

“The strong momentum in government spending will be continued into 1H16 (first half of 2016), and we revise higher our 2016 GDP forecast to 5.8 percent from 5.7 percent previously,” it said but added that a projected deceleration in the second half of the year.

Also, even as rate of price increases remained low and ended 2015 below the government’s two to four percent target at 1.4 percent, it remained supportive of growth, it said.

With these, HSBC does not see big changes in the Bangko Sentral ng Pilipinas’ (BSP) key rates but only a minimal 25 basis points decrease to 3.75 percent in the second quarter as the central bank prepares for the implementation of the Interest Rate Corridor (IRC).

Philippine monetary officials plan to implement the IRC in the second quarter of this year to further improve effectiveness of monetary policy.

Under the planned IRC, two standing liquidity facility, namely deposit and lending, will serve as corridor for the central bank rates and these will be supported by auction-based monetary operations. (PNA) RMA/JSV