Analysts from UK-based investment bank Barclays looking at the Philippines’ latest inflation data—at 0.8 percent in July marking the most benign growth in consumer prices in 20 years—said a low inflation rate does not automatically call for an easing in monetary policy.
They see the Bangko Sentral ng Pilipinas (BSP) being comfortable in its present policy stance, which keeps growth activity levels stable.
“While recent comments from the central bank indicate a calibrated approach to lower inflation prints, we sense that the currency stability and an expected rate hike by the [US] Fed will keep rates stable for the time being,” an analysts’ note from Barclays said.
If liquidity conditions deteriorate due to capital outflows on the back of a potential US rate hike, however, the Barclays analysts said there could be outside risks of easing in the reserve requirement ratio (RRR) for banks.
They also said that while near-term inflationary pressures look manageable, drier-than-normal weather conditions could affect agriculture production, which may risk stoking inflation.
Some signs have emerged that rice planting in the Philippines has been affected by such weather conditions, which could prompt an increase in imports, they added.
“As such, we continue to think it is unlikely that the BSP will join other central banks in easing monetary policy. We forecast the next policy move will be a hike, most likely in the fourth quarter of 2015, after the Fed has begun its expected tightening,” the note from the Barclays analysts said.
Elsewhere in Asia, other central banks have been resisting government pressure for a cut in interest rates, such as the Reserve Bank of India, which on Tuesday decided to keep its key rates on hold, saying the country’s economic recovery was “still a work in progress.”
The Reserve Bank of Australia also held its interest rates at a record low of 2.0 percent as it kept the possibility of further easing on the table and dropped calls for a weaker exchange rate.