PRIVATE ANALYSTS AGREE

MB to keep key rates unchanged

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THE Monetary Board of the Bangko Sentral ng Pilipinas (BSP) is likely to maintain its key policy rates at its next meeting Thursday, given the low inflation rate and economic recovery in the last quarter of 2014.

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Private analysts forecast the Monetary Board will keep its current rates for overnight borrowing and overnight lending at 4 percent and 6 percent, respectively.

The interest rate for the special deposit account (SDA) is also expected to stay at 2.50 percent, as well as the 20-percent reserve requirement ratio (RRR) for banks.

Singapore banking giant DBS stressed in a report that no change is expected for either the BSP’s key overnight borrowing or lending rates or the SDA in the near term.

“At this juncture, we reckon that the central bank is quite comfortable with the current GDP [gross domestic product]growth and CPI [consumer price index]inflation dynamics,” it said.

The bank noted that the acceleration in fiscal spending in the fourth quarter of 2014 was an encouraging sign for 2015, adding that the string of public-private partnership projects has been a key support for overall GDP growth in recent years.

“The same is expected for this year, although the implementation phase is increasingly in focus. Private consumption remains resilient and there is no reason why the BSP should be worried on this front,” it stated.

DBS also said that the rather sharp moderation in CPI inflation is the reason why the central bank is reluctant to raise its key policy rate for now.

Headline inflation came in at 2.4 percent in January, its lowest level in more than a year.
A private equities analyst also believes the Monetary Board will leave rates unchanged at the moment.

“The 6.9 percent GDP [growth]last quarter and the low inflation for January 2015 support the view that current settings are still consistent and supportive of the government’s targets,” Justino Calaycay, analyst at Accord Capital Equities Corp. said.

The analyst pointed out that revisiting the BSP’s key policy rates may be called for if and when the US Federal Reserve decides to raise its rates—estimated by many to be sometime mid-year—or if and when oil prices begin to climb again.

“Until then, the numbers that have come out so far both for the general economy and for investments and businesses have shown the viability of holding current settings as is,” he said.

Meanwhile, Emilio Neri Jr., Bank of the Philippine Islands lead economist, sees no change in the upcoming MB meeting as inflation, particularly prices of food, may remain subdued given some easing in the supply-side bottlenecks.

The economist added that the sustained levels of crude oil prices below the $50-level may positively impact other commodities in the CPI basket as well as improve the chances that the BSP will keep rates neutral throughout 2015.

“However, we still expect the BSP to hike by 50 bps [basis points]in our 2015 central scenario, to be triggered by alignment of Philippine policy with the Fed, as the BSP governor flags the need to monitor the interest rate differentials and its potential implications on contagion and exchange market pressure,” he said.

Neri added that the Federal Open Market Committee is still expected to hike rates by 50 basis points this year.

He, however, noted that the possibility of the BSP cutting its policy rates this year remains remote given strong domestic demand, evidenced in the above-consensus GDP growth print, with the monetary authority less compelled to use monetary policy as a growth catalyst.

“We believe the monetary authorities will only contemplate cutting rates if they see that 2015 and 2016 inflation prints stay below 2.0 percent for a prolonged period. We think the most the BSP will deliver is a neutral stance,” he said.

Lastly, banking giant HSBC said the central bank has space to keep rates steady when it meets on Thursday.

“We expect rates to stay on hold for all of 2015,” said HSBC economist Trihn Nguyen.

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