‘BSP to pause tightening cycle’


The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) is expected to pause its monetary tightening cycle at its meeting today pending clearer indications of the impact on the financial system of its recent policy adjustments.

Private analysts see the Monetary Board keeping its current rates for overnight borrowing and overnight lending at 4 percent and 5.75 percent, respectively.

The interest rate for the special deposit account (SDA) may also be left unchanged at 2.50 percent, they said. The 20-percent reserve requirement ratio (RRR) for banks is also seen maintained at current levels.

HSBC analysts said in report that the central bank is likely to hold rates steady on the basis of within-target inflation rate and uncertainty over the country’s 6.5 percent to 7.5 percent gross domestic product (GDP) growth outlook.

“The BSP is expected to hold both its main policy and the SDA steady. September inflation eased to 4.4 percent year-on-year from 4.9 percent in August on slower food and transportation costs, as well as a favorable base effect,” the HSBC report said.

Nicholas Antonio Mapa, Bank of the Philippine Islands associate economist, also sees no change for the BSP’s benchmark interest rates and the SDA while the central bank waits for its recent string of policy adjustments take effect on the financial system.

“After the flurry of moves, capped off with the dual-action used in the previous meeting, we could see BSP Governor Amando Tetangco Jr. waiting for the dust to settle and gauging how his recent policy moves have impacted the economic variables such as liquidity and latent inflationary pressures,” he said.

“For sure, inflation expectations are on the downtrend and this will be enough to convince the BSP to keep the powder dry for now,” he added.

Rafael Algarra, executive vice president at the Security Bank Corp., said that the Monetary Board’s aggressive twin rate hikes in its September 11 meeting must have addressed immediate inflationary concerns.

The “BSP would most likely wait for additional data to determine [any]additional actions,” he said.

Victor Abola of the University of the Asia and Pacific expects no change in BSP’s monetary policy, as reflected by the SDA rate, policy rates, and RRR for banks.

“I believe that inflation has peaked and the man-made causes (low rice importation and truck ban in Manila) have been addressed. Besides, crude oil prices in the world market are in three-year lows, and this should provide further impetus to the inflation slowdown,” he said.

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

The economist said ING bank supports BSP’s view that inflation has peaked and is likely to trend lower as prices on a week-on-week basis for key food items are continuing to ease.

“We expect the positive base effects to become more dominant in 2015 and we are reviewing further our 2015 inflation forecast for a possible downward revision toward the 3 percent to 3.5 percent area,” he said.

Meanwhile, Singapore banking giant DBS said the BSP may leave its key policy rate unchanged at 4 percent as the bulk of the adjustment in monetary policy has been delivered this year.

However, it noted that further policy normalization through the SDA rates is likely, given the need to absorb more liquidity from the banking system.

“It will be interesting to monitor the tone of the policy statement. Underlying domestic growth forces remain strong, as evidenced by how core inflation has been relatively steady (if not trending slightly higher) in recent months despite headline inflation having recently peaked,” the bank stated in a report.

DBS said concerns over the state of the global economy, however, may prompt some caution from the central bank. Export growth has been a key positive difference in the first half of 2014 but there is little guarantee that things will be the same going into 2015, it said.

It added that longer-term growth sustainability remains in focus, considering that investment growth has been extremely high in the past three years or so.

“This is why the BSP will continue to monitor liquidity growth in the financial system. At the same time though, the main reason for the string of rate hikes this year is to make policy adjustments from a position of strength. The BSP is unlikely to go all-out at this juncture, particularly since there are now doubts over fiscal policy outlook going into 2015,” the bank concluded.


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