British lender Hongkong and Shanghai Banking Corp. said Monday it expects Bangko Sentral ng Pilipinas to maintain interest rates to ensure sustained growth after Britain voted to exit the European Union last week.
HSBC said in a report titled “Brexit ripples” that among Asian countries, the Philippines and Malaysia might not ease monetary policy in the months ahead.
“In Malaysia and the Philippines, too, we see no real scope for monetary easing at the moment, with the former more constrained by potential financial volatility and the latter’s financial system still being flush with excess liquidity,” HSBC said.
“Central bankers may certainly do whatever they can, but the heavy lifting should fall on the shoulders of fiscal authorities. Moreover, the case for reforms is becoming ever more pressing,” it said.
A day after Britain’s historic vote, Bangko Sentral Governor Amando Tetangco Jr. said the regulator’s monetary policy stance remained appropriate and there was no need at the moment to tweak it.
He said more volatility in domestic markets in the near term was expected. He said while the direct Philippine exposure to the UK was relatively small, monetary authorities would watch closely the impact on the country via contagion from moves in the US dollar.
Tetangco said Bangko Sentral was ready to provide liquidity to the market as needed. “We don’t see any need to change stance of monetary policy at the moment,” he said.
The policy-setting Monetary Board kept the benchmark interest rates steady on June 24, amid a manageable inflation environment and robust economic growth.
The interest rates were retained at 3.5 percent for overnight lending, 3 percent for overnight borrowing and 2.5 percent for deposit facility.
Bangko Sentral Deputy Governor Diwa Guinigundo said while Great Britain was one of the Philippines’ important trading and investment partners, the Philippines’ had sufficient buffers to absorb any negative consequence of a “Brexit.”
Britain voted to leave the 28-nation European Union which heavily impacted global financial markets.
HSBC said markets did not take the “Brexit” vote too well. It said that with growth already wobbly, policymakers across the region might need to do more to “steady the ship.”
HSBC said extra fiscal spending would be needed to tide the region over any potential slump in world demand.
“Japan seems ready to deliver more, and so does China. Elsewhere, Korea, Singapore, Hong Kong, Australia, New Zealand and the Philippines could do a lot more as well, but probably won’t, at least not very quickly,” it said.
Incoming President Rodrigo Duterte earlier said he would ramp up fiscal spending, particularly on infrastructure projects, to sustain economic growth.
The Philippine economy expanded 6.9 percent in the first quarter this year, faster than 5 percent a year ago, on robust domestic demand and private consumption.
Experts said growth in the second quarter would likely be faster, on election-related spending.