HSBC sees no policy change

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The Bangko Sentral ng Pilipinas (BSP) may keep rates on hold, but a hike will likely arrive in the coming months as the monetary authority will be more vigilant on inflation and economic growth, economists said on Wednesday.

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“Things are heating up in the Philippines. While January headline inflation came in largely in line with expectations, it continued to breach of the mid-point of the central bank’s three to 5-percent inflation target. This means that the room to keep rates steady has significantly narrowed,” HSBC Asian economist Trinh Nguyen said in a report.

The Monetary Board of the BSP meet today to decide on the policy rates.

Nguyen noted that there is still space for the central bank to keep rates on hold as headline inflation, while rising, is much tamer underneath the surface.

The HSBC economist also mentioned that while the central bank will be more vigilant on inflation and will probably raise rates, it is still too early to discern whether the recent pickup in inflation is because of temporary factors, which will abate, or a result of underlying inflationary pressures.

“We believe the central bank will hold rates tomorrow and keep a close eye on prices,” Nguyen said.

However, the economist said that HSBC is seeing two rate hikes in the second half of 2014 as higher utility prices, a still-lingering negative supply shock from Super Typhoon Yolanda, and a weaker peso are expected to keep headline inflation elevated in 2014.

“We forecast two rate hikes in the second half of 2014, taking the main policy rate to 4 percent from the current rate of 3.50 percent.The next central bank meeting is on 27 March 2014 and the subsequent one on 8 May 2014. The February inflation reading due on 5 March 2014 will be an important figure to watch as it will indicate how soon the BSP will move to hike rates,” Nguyen said.

Meanwhile, Standard Chartered Bank economist Jeff Ng said that the current monetary policy stance of the BSP is still appropriate for now. Ng said that the central bank will remain watchful on risks on the country’s growth in the first quarter of the year.

He said that the BSP will only hike the policy rates when growth concerns are reduced in the second half, and the reconstruction of the typhoon-damaged areas is on track.

“We expect inflation to remain within four to 5-percent range in the first quarter and second quarter. Risks to our forecasts will be whether electricity prices are hiked, placing upside pressure on inflation,” he said.

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