• BSP keeps key rates

    0

    Cuts 2015 inflation forecast

     BSP Governor Amando Tetangco Jr

    BSP Governor Amando Tetangco Jr

    THE Philippine central bank kept its key interest rates unchanged, but trimmed its inflation forecast for 2015 to 1.6 percent at a monetary policy meeting on Thursday.

    The previous inflation forecast for the full year was 1.8 percent.
    For its key policy stance, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) kept the rate for overnight borrowing at 4 percent and that for overnight lending at 6 percent.

    The BSP also held the special deposit account (SDA) rate steady at 2.50 percent, while the reserve requirement ratio (RRR) for banks still stands at 20 percent.

     BSP Deputy Governor Diwa Guinigundo

    BSP Deputy Governor Diwa Guinigundo

    BSP Governor Amando Tetangco Jr. said the Monetary Board’s decision is based on its assessment of the dynamics and risk in the inflation environment over the policy horizon.
    For 2016, the central bank adjusted upward its inflation forecast to 2.6 percent from the previous projection of 2.5 percent, and raised it further to 3 percent for 2017.

    The BSP’s action follows last week’s decision by the US Federal Reserve to hold its key Fed rate steady at the zero level in a move that Fed chair Janet Yellen said was based on the current inflation outlook, and partly influenced by the ongoing crisis in China.

    Briefing reporters after the BSP’s monetary board meeting on Thursday, BSP Governor Amando Tetangco Jr. said: “While the latest baseline forecasts show that inflation could fall below the inflation target range of 3 percent plus or minus 1 percentage point for 2015 due to the successive low inflation outturns in recent months, inflation is projected to return gradually to a path consistent with the inflation target for 2016 to 2017.”

    In the same briefing, BSP Deputy Governor Diwa Guinigundo said the downward revision by the central bank’s inflation forecast for 2015 to 1.6 percent took into account the continuing softening of crude oil and food prices.

    Tetangco said inflation expectations remain anchored within the inflation target band over the policy horizon.

    Upside risk for the Monetary Board’s inflation expectations could come from the impact of a stronger and protracted El Nino dry weather conditions on food prices and utility rates, as well as pending petitions for power rate adjustments.

    “Weather conditions will be more serious in the sense that the forecast is for a stronger El Nino and prolonged until June 2016. Any additional risk from the dry weather conditions related to El Nino would significantly affect the balance of risks,” Guinigundo said.

    The Monetary Board also considered the weakness in global economic growth and continuing uncertainty over the global financial markets.

    “We’ve seen how regional currencies have depreciated, and the peso is one of them. The weakness in the peso has inflationary implications for 2016 and 2017,” Gunigundo said.

    Tetangco added that the Monetary Board, however, is of the view that domestic demand conditions remain firm, supported by buoyant business and consumer sentiment and ample domestic liquidity.

    “Given these considerations, the Monetary Board believes that the benign inflation outlook and the economy’s underlying growth momentum provide ample room to keep the monetary policy settings unchanged at this time,” Tetangco said.

    The central bank governor reiterated that the BSP’s monetary policy stance will remain consistent with maintaining price and financial stability.

    Opposing views
    Following Thursday’s announcement by the BSP of its policy settings, private analysts said key interest rates may remain steady in the near term as the central bank becomes wary of deflation, but will eventually raise the rates sometime next year.

    Capital Economics Asia economist Gareth Leather said the central bank is likely to leave the rates unchanged in the near term.

    “Looking ahead, we doubt the central bank will be in any hurry to adjust interest rates. Arguably the biggest concern for the central bank is the risk of deflation,” Leather said.

    Inflation came in at just 0.6 percent year-on-year in August, which is not only the lowest since 1987, but also well below the BSP’s 2 percent to 4 percent target, he noted.

    Capital Economics expects inflation to move toward the mid-point of that range by the middle of next year.

    “Overall, we expect the central bank will keep interest rates unchanged at 4.0 percent not only until the end of 2015, but well into next year as well,” Leather said.

    For Rahul Bajoria, an economist at the UK-based investment bank Barclays, the next policy decision is expected to be a rate hike, but only later.

    “Benign inflation conditions leave room to keep policy on hold for the time being. As such, we only expect BSP to deliver a rate hike in the third quarter of 2016, when election-related uncertainty should be over, and inflation is starting to pick up,” he said.

    In the meantime, Bajoria said Barclays expects market attention to shift rapidly toward next May’s presidential election, which is likely to become a bigger focus going into the fourth quarter of 2015, when the major presidential aspirants have officially announced their candidacies.

    Share.
    loading...
    Loading...

    Please follow our commenting guidelines.

    Comments are closed.