Singapore’s DBS Bank expects the Bangko Sentral ng Pilipinas (BSP) to keep policy rates steady in the near-term, saying the Philippine growth and inflation dynamics as well as the current peso level remain within central bank targets.
“As widely expected, Bangko Sentral ng Pilipinas kept its interest rates steady on Thursday. There was little indication for any move in the near-term,” DBS said in a research note over the weekend.
During its first policy meeting for 2015 on Thursday, February 12, the BSP’s Monetary Board kept the rate for overnight borrowing at 4 percent and for overnight lending at 6 percent.
The rate for all tenors of special deposit accounts or SDA was also kept at 2.50 percent, while the reserve requirement for thrift banks was left at 8 percent and for universal and commercial banks at 20 percent.
The central bank also cut its inflation forecast for full-year 2015 to 2.3 percent from the previous forecast of 3 percent. For 2016, the forecast was trimmed to 2.5 percent from 2.6 percent.
“The BSP seems fairly comfortable with the relative strength seen in the peso. Persistently strong overseas workers remittances have sustained support for the peso,” DBS Bank said.
In this regard, the Singapore-based bank said the BSP is likely to accumulate more foreign reserves in light of a favorable balance of payments position which capped 2014 with a $2.88- billion deficit.
Part of the BSP’s confidence stems from the modest outlook for export growth, DBS Bank added.
“While December 2014 export growth came in disappointing, it was important to see continued growth of electronics exports. Shipments of electronic products grew by 8 percent last year, as compared to the 4.7 percent recorded in 2013,” it said.
Moving forward, the growth in exports of electronic products is vital to support the manufacturing sector, the bank noted.
“Construction almost single-handedly lifted GDP growth in 2011-2013, but we now have a strong average 10-percent growth in manufacturing in the past two years,” it said.
“The preference to raise rates is intact but it is hard to justify making a move in the current environment. Expect steady rates for now,” it added.