Philippines must brace itself for more measures on borrowing rate

Borrowing rate has hit record low 3.5%.

According to DBS, the central bank (BSP) meets this Thursday, but we expect no change in the policy rate. The economy is enjoying the sweet spot of high growth and low inflation and this situation is set to continue in the coming quarters.

Foreign investors have started to take notice and this has been reflected in the surge in portfolio inflows (gross portfolio inflows reached USD18.5bn in 2012).

Notably, the Philippine stock exchange index posted returns in excess of 40% in USD terms lastyear. Coping with the excessive inflows remains the key challenge, with the strengthening peso threatening the competitiveness of several industries including business process outsourcing.

Here's more from DBS:

Although BSP slashed the overnight borrowing rate a record low of 3.50%, room to cut the policy rate further has become more limited. Instead, BSP has been clamping down on speculative pressures by limiting NDF exposure and restricting foreign access to BSP’s special deposit accounts.

More administrative measures may be introduced in the near term.