BMI RESEARCH FORECASTS:

No change in BSP policy stance

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A consensus has emerged among analysts pointing to a steady policy stance by the Philippine central bank when it meets later this week, with BMI Research also expecting no change to the key interest rates.

“The Philippines’ ongoing growth-inflation sweet spot informs our forecast for the Bangko Sentral ng Pilipinas [BSP] to keep its benchmark interest rate unchanged at 4 percent in 2015,” the think tank unit of the Fitch Group said in its weekly economic analysis. BMI was referring to the key rate for overnight borrowing, or the reverse repurchase (RRP) facility.

Sharing the same view are analysts from Citi, Metrobank Research, Security Bank Corp., University of Asia and the Pacific (UA&P), Bank of the Philippine Islands (BPI).
BMI also projected yields to remain well anchored amid a benign inflationary environment.

Since September last year, the Bangko Sentral ng Pilipinas (BSP) has kept its key policy rates for overnight borrowing at 4 percent while the rate for overnight lending—or the repurchase facility—has remained at 6 percent.


The SDA rate and the reserve requirement ratio (RRR) for banks have also been frozen at 2.50 percent and 20 percent, respectively.

Inflation is seen averaging 2.1 percent, or within the 2 percent to 4 percent target this year, before the rate picks up to 2.5 percent in 2016.

After headline inflation hit a record low of 0.8 percent in July, the central bank now faces pressure from expectations among banks and private think tanks for a cut at least in the RRR as banks take risks in supporting the economy’s growth catalysts.

Private economists have warned of repercussions on growth in the local economy if bank lending slows to a less than desired pace without enough monetary support from the central bank while the commercial banks deal with fallout from an almost certain hike in the US Federal Reserve policy tightening and the slowdown in China’s economy.

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