• Analysts see pause in BSP tightening


    The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) is again likely to keep its key policy rates steady at its next meeting on Thursday, given the moderating pace of growth in domestic liquidity, the economy and inflation, analysts said on Tuesday.

    The policy-making body of the central bank must also consider the easing stance of other major central banks when it draws up its next policy move, they said.

    Private analysts polled by The Manila Times predict the Monetary Board will maintain its current rates for overnight borrowing and overnight lending at 4 percent and 6 percent, respectively.

    The interest rate for the special deposit account (SDA) is also seen being left unchanged at 2.50 percent. The 20-percent reserve requirement ratio (RRR) for banks is, likewise, projected to stay at current levels.

    Growth slowdown
    Bank of the Philippine Islands (BPI) economists said the MB’s policy decision on Thursday will be based on the slowing expansion of domestic liquidity (M3), declining gross domestic product (GDP) growth and moderating inflation rate.

    The rise in the country’s money supply in October eased to a year-on-year rate of 15.4 percent from the previous month’s annual expansion of 16.2 percent.

    Headline inflation rate in November slowed further to 3.7 percent year-on-year from 4.3 percent in October.

    Meanwhile, slow government spending pulled down third-quarter GDP growth to 5.3 percent year-on-year, the slowest pace for a three-month period since the fourth quarter of 2011.

    Emilio Neri Jr., BPI lead economist said that combined with M3 growth heading for a return to normal, a weaker-than-expected third-quarter GDP print and November’s surprise inflation rate should give the monetary authorities even more room to maintain their current policy stance.

    Other central banks easing
    Besides seeing a moderating inflation rate, the BSP will also take into consideration the easy monetary policy stance taken by other major central banks, said Justino Calaycay, analyst at Accord Capital Equities Corp.

    “At any rate, given that inflation pressures have significantly eased, and preference for—or at least expectations of—easy money stance in Europe, China and even Japan, the BSP may leave the rates unchanged for now,” he said.

    Furthermore, Calaycay said that with GDP having slackened off to 5.3 percent in the third quarter and pulling year-to-date growth down to 5.8 percent, it would be “counterproductive” for the BSP to raise interest rates at this time.

    Falling oil prices
    Patrick Ella, economist at Security Bank Corp., said declining oil prices and the positive impact of that on inflation may give the BSP enough room to keep its key rates in place.

    “We think that the BSP has enough room to keep rates on hold for the time being, at least up until the end of the first quarter of 2015 as inflation is clearly normalizing and will trend 4 percent for the next few months, thanks to collapsing oil prices,” he said.

    Victor Abola, economist at the University of the Asia and Pacific, also expects no change to BSP’s monetary policy as warranted by an easing inflation and slowing economy.

    “No change. Inflation has eased and growth has slowed so BSP will keep policy rates and SDA rates at present levels,” he said.

    Pauline Revillas, research analyst at Metrobank also expects the BSP to keep policy rates steady amid easing inflation numbers and the need to support the domestic economy.

    ING Bank Manila senior economist Joey Cuyegkeng, in his latest market views comment, also shared the consensus view that the BSP-MB is likely to take a pause in its tightening cycle.

    “Softer inflation practically cemented a no-change outcome at this Thursday’s BSP-MB meeting. The November inflation dropped and surprised on the downside. The moderating inflation reports of not only headline inflation but also core inflation deliver to the BSP-MB policy space,” he said.

    Tamer inflation outlook
    Cuyegkeng added that inflation expectations are likely to be reduced further to well within the 2015 inflation target range of 2 percent to 4 percent.

    At its previous meeting, the central bank trimmed its inflation forecast for full-year 2014 to 4.4 percent from the previous forecast of 4.5 percent.

    For 2015, the forecast has also been adjusted downward to 3.7 percent from 3.8 percent. For 2016, it was adjusted to 2.8 percent from the previous 3 percent.

    “Nevertheless, the BSP will remain on the lookout for threats to the inflation path that may emanate from global developments of multi-year lows of commodity prices, especially oil prices and the possible volatility that these prices could generate, growth outlook for advance economies and the monetary policy, especially the normalization of US monetary policy, in contrast to the impact of additional accommodation from the European Central Bank and the Bank of Japan (including People’s Bank of China),” Cuyegkeng said.

    Philippine growth and demand pressures, together with the price repercussions of natural calamities occupy BSP’s domestic concerns, he added.

    Meanwhile, Singapore banking giant DBS stressed in a report that any BSP policy rate adjustment is unlikely to be seen in the near-term.

    “The sharp moderation in GDP growth has taken almost everyone by surprise. Steady rates are on the cards for now,” it said.

    However, it noted that the central bank may still look to tweak the rates on the SDA to keep a check on liquidity growth in the financial system.
    “The policy statement will be interesting, especially in terms of the central bank’s guidance for next year. The BSP remains wary of liquidity growth, given that loan growth remains high circa 20 percent despite the string of policy tightening this year,” the bank added.


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