While United States fed poised to raise rates, Asian central banks still have room to cut rates – HSBC

MANILA, Philippines - Hongkong and Shanghai Banking Corp. (HSBC) said central banks in Asia, including the Bangko Sentral ng Pilipinas (BSP), have room to cut rates amid the expected interest rate lift-off in the US. 

HSBC economist Frederic Neumann said several central banks in Asia are expected to slash interest rates next year as the US Federal Reserve is likely to adjust upwards its near zero interest rates this week. 

He pointed out easing is still on the way in much of Asia no matter what the US Fed does this week.

“The Fed may be hiking, but we believe officials in Asia still have plenty of easing to do,” Neumann said in the bank’s latest Chart of the Week titled “Why things feel so soggy in Asia.”

For one, HSBC believes the BSP’s Monetary Board would slash key policy rates in the second quarter of next year. The bank sees the BSP reducing overnight borrowing rate to 3.75 percent in the second quarter of 2016 from the current level of four percent, and the overnight lending rate to 5.75 percent from six percent.

The BSP has kept interest rates unchanged since October last year amid the strong domestic demand and benign inflation environment. In 2014, the Philippine central bank raised policy rates by 50 basis points and jacked up the reserve requirement ratio of banks to 20 percent. 

Aside from the Philippines, HSBC sees central banks in Australia, New Zealand, China, Indonesia, Korea, and Taiwan cutting key policy rates next year.

HSBC earlier reduced the gross domestic growth forecast of the Philippines to 5.5 percent instead of 5.6 percent this year and to 5.6 percent instead of 5.9 percent next year.

The country’s GDP growth accelerated to six percent in the third quarter from the revised 5.8 percent in the second quarter due to robust domestic demand and improving government spending. 

However, the country’s GDP expanded by only 5.6 percent in the first nine months  or way below the seven percent to eight percent GDP growth penned by economic managers. 

Neumann said real GDP growth in Asia has been fairly steady, if not lackluster by past standards since 2011.  

He pointed out the nominal GDP growth in the region has fallen by nearly two thirds in the last three years.  

“That directly impacts companies’ revenue growth, and also implies a slowdown in wage growth, as well as an increase in real debt servicing costs for borrowers; hence, that soggy feeling,” he added. 

For next year, HSBC sees the inflation in the Philippines kicking up to 3.3 percent after easing to 1.6 percent this year from 4.2 percent a year ago.