BSP is facing the issue of choosing between, "maintaining Peso competitiveness, clamping down on speculative capital flows, or tolerating money market rates much lower than the reverse repo rate" explains Irene Cheung, ANZ Research Analyst.
There is a crucial difference with many other AXJ economies, Irene outlines: "The Philippine economy is likely to grow by at least 5% y/y, which is faster than in 2011. In our view, the robust seasonally adjusted sequential growth momentum necessitates more caution on the stance of monetary policy rather than a near-term bias to ease."
Ms. Cheung acknowledges that "the monetary trilemma is here to stay" with the likelihood of a rate cut before the end of 2012 rising. But for now, Irene adds, "we think authorities will remain focused on administrative measures for curbing speculative positions in the Peso."