MICROECONOMICS

| BSP: Monetary Board Cuts Policy Rates

The BSP should cut the policy rate because the inflation rate which is 2.8 is lower than the 3-5 percent target of the government. Lower interest rates serve as an incentive to attract investments and borrowers so that money would not be stagnant. More investments would come and it would trigger the economy to boom for example more employment would be available, more development would be done and more there will be uplift in the economic condition of the country that will benefit all of its stakeholders and stockholders so  that we are not dependent to other economy. ”Latest baseline forecasts indicate that inflation is likely to settle within the lower half of the 3% to 5% target for 2012 and 2013, as pressures on global community prices are seen to continue to abate amid weaker global growth prospects," it added. The monetary officials' decision was not exactly a surprise after BSP Governor Amado Tetangco hinted that the continuing low inflation provides room for a rate cut.

Policy makers watch inflation since low interest rates tend to make money easier and borrowing cheaper, thus there is more money in an economy. As a textbook altruism, people tend to spend more when an economy is awash with money, in effect driving up the cost of goods and services. Low interest rates are meant to spur economic growth by encouraging businesses to borrow for their expansion needs, and for citizens to invest in capital assets, including cars and real estate properties. Therefore, given the circumstances and factors affecting the cut in policy rates will be slightly/moderately dependent on the value arising from inflation rate and the factors coming from the unstable global economy.

Furthermore, the Philippines deserve a positive investment grade rating. Philippine economic development is very visible on line with the positive expectation with the current administration.

1. It would attract more foreign investments. Because the foreign investors wants a good rating before they invest in the country.
2. It would boost your currency. The upgrade has already propelled the Philippine peso to 41.72 against the US dollar, the local currency’s strongest showing in four years.
3. The credit upgrade increases the likelihood that the Philippine economy would grow bigger this year compared to last year.

     On the positive note positive credit rating can drive job-generating foreign direct Investments, lift incomes, and reduce poverty and that a country is strong and stable and have a confidence that debt would be settle with not much big issues. But this rating can be abuse just like the cause of recession in America wherein they use their asset in many loans and soon after they collapse. Credit rating is a countries asset to borrow money in international community, if this borrowing will not be mobilized properly. It can be abuse and leads to a bigger problem just like before with the time of Marcos. On the negative note since credit rating determines country’s stability overseas transaction may also be affected in a positive side its good but on the other hand this might trigger to OFWs remittance transaction which we all know that it is one of the Philippine’s pillars of economics stability and growth. Last, the gross international reserves (GIR) which indicates a country’s wealth of foreign exchange and determines its ability to pay for imported goods, pay debts to foreign creditors and engage in other commercial transactions with the rest of the world and the Philippines GIR reached a record high of about $77 billion earlier this year. But with the other developing countries starting to have recession just like US and Europe the GIR may collapse greatly and will immediately decline economic activity. If your grade rating is positive many investor will be investing in our country and many Filipino citizen will have works and it will boost our economy.

     

    http://www.bsp.gov.ph/publications/media.asp?id=2937