The Bangko Sentral ng Pilipinas (BSP) may retain its policy rate settings despite a higher inflation rate projection this year, Metrobank Group’s investment banking arm said on Monday.
In an economic briefing dubbed as “FMIC Philippines 2014: Resiliency Amidst Uncertainty,” First Metro Investment Corp. (FMIC) said that the inflation rate for 2014 may rise up to 4 percent on the account of the impact of recent weather disturbances.
“Inflation rate, because of the recent effects of the disruptions in terms of supply chain may rise to about 3.8 percent to 4 percent,” Dr. Victor Abola, economist at the University of Asian and the Pacific, said.
He added that the inflation rate environment will remain manageable as it will still be at the 3-percent to 5-percent target band of the central bank.
“We don’t foresee the BSP changing the policy rates for the year,” FMIC Senior Vice President Reynaldo Montalbo Jr. said.
The firm also said that the inflation rate is likely to continue its upward movement in the early part of the year, but is anticipated to decelerate before the year ends.
Montalbo noted that if the inflation rate would rise beyond 1 percent, then the BSP is seen adjust its policy rates that will have an effect on local interest rates.
“In the first half [of 2014], we see interest rates going higher but on the second half, once we see the impact of the US economic recovery and the [Fed] tapering then we see interest rates falling,” he said.
For his part, FMIC President Roberto Juanchito Dispo said that once the inflation rate goes beyond 4 percent, the BSP is seen to adjust policy rates by 25 basis points (bps) to 50 bps.
“The BSP is now operating in the interest rate corridor situation. Wherein the higher end of the interest rate is the policy rate which is 3.5 percent and the de facto core of the policy rate is the SDA [special deposit account]rate which is 2 percent,” he said.
On the other hand, Abola said that the BSP will look for signs that inflation will normalize below 4 percent, adding, “If BSP sees that, it will delay any rate hike either in the SDA or the policy rate for the second semester.”
The economist also noted that inflation is not likely to be major concern because of the softening crude oil prices, which is projected at $95 a barrel, and better rice output in the first half of 2014.
Meanwhile, FMIC also said that the Philippine peso this year may average between P43 and P46 a dollar.
In terms of remittances, the firm said that growth rate is seen at 6 percent to 7 percent as demand for overseas Filipinos workers (OFWs) will be sustained this year.
FMIC added that OFWs will send more money to their families, particularly to those affected by the natural disasters in Central Philippines.