The Bangko Sentral ng Pilipinas (BSP) may retain its key policy rates until the second half of 2014, according to the latest economic report from banking giant HSBC.
“We do not expect policy to change until H2 2014, as inflation is expected to stay benign until then and growth momentum is still robust,” HSBC stated in the report “The Philippines: No news is good news: the BSP held rates.”
In its latest meeting, the Monetary Board of the BSP decided to maintain reverse repurchase rate at 3.5 percent, and the repurchase rate at 5.5 percent on the back of benign inflation environment.
The reserve requirement ratios were kept steady as well, while special deposit account rate was retained at 2 percent.
“With the current monetary stance appropriate, we do not expect the central bank to shift on policy until H2 [second half]2014, when tightening is likely,” the report stated.
The HSBC report added that the central bank is in a “sweet spot” and growth momentum is looking up, especially from a demand perspective.
It noted that inflation, despite stormy weather and strong growth, remains very manageable in the next six months.
For its part, the BSP is still seeing inflation rate to average at the lower end of its 3-percent to 5-percent target range this year, as it retained its inflation forecast for 2013 to 3 percent.
However, there were slight changes in the monetary authority’s inflation forecast for the next two years.
Inflation for 2014 was seen at 3.9 percent, down from the previous estimate of 4 percent. For 2015, the BSP’s inflation forecast was at 3.4 percent, lower than the 3.5 percent previous estimate.
The central bank said that the changes in the forecast can be attributed to the actual outturn of September inflation rate, which picked up to 2.7 percent in September from 2.1 percent in August.
It noted that price pressure on September was higher than expected and it will have an impact on the succeeding months of 2013 to 2014.
Meanwhile, the HSBC report also said that better economic conditions in host countries have boosted remittances lately, and these transfers rose more than expected in August, bolstering private consumption in the country.
“After a lackluster first half of 2013, exports also rose sharply thanks to nonelectronics’ stellar performance. We expect this trend to continue toward year-end, with both trade and remittances performing better than in H1 [first half]2013,” it said.