The Philippine central bank may tighten its policy rates beginning the fourth quarter of the year as a pre-emptive measure against an expected rise in inflation in 2016, Standard Chartered Bank said.
StanChart forecasts a 50-basis point hike by the Bangko Sentral ng Pilipinas (BSP) in its reverse repurchase (RRP) facility and special deposit account (SDA) rates, pushing them up to 4.5 percent and 3 percent, respectively, by end-2015.
The BSP has just frozen its key policy rates in Thursday’s Monetary Board meeting, keeping the RRP, or the overnight borrowing rate, at 4 percent and the overnight lending or repurchase facility at 6 percent.
The SDA was also held unchanged at 2.50 percent.
StanChart economist Jeff Ng told reporters in a press briefing on Friday the base effect of inflation will turn unfavorable from the fourth quarter, and could be exacerbated further by a rebound in energy prices.
Growth in money supply and loans, along with inflation, is likely to influence the BSP stance, Ng said.
Money supply growth is expected to pick up again after it slowed sharply to 7.7 percent in January this year from a peak of 38 percent in January 2014.
Loan growth, meanwhile, has remained at levels just below 20 percent for most of 2014.
Inflation seen at 2.2%
The StanChart economist sees inflation remaining at the 2 percent level in the next few months, before rising in the fourth quarter of this year.
Ng’s assumption includes potential electricity shortages and hikes in utility rates and transport fares likely dampening the effects of lower oil costs on consumer prices this year.
“We forecast inflation at 2.2 percent in 2015, below the 4.2 percent print in 2014 and within BSP’s target range of 2 percent to 4 percent this year,” he said.
PH, Asia’s bright spot
For now, on a macro level, Ng said StanChart’s view of the Philippine economy is that is well anchored.
Gross domestic product (GDP) will sustain its growth at 6 percent in 2015, according to StanChart’s forecast, which falls below the government’s 7 to 8 percent projection for this year.
The bank’s forecast is also below the 6.1 percent expansion achieved in 2014.
But Ng said the country will remain Asia’s “bright spot” in the face of global uncertainty, with already solid growth prospects showing further upside as more investment and exports are expected.
“This year, the key theme for the Philippines is that we remain ‘anchored.’ The PH economy is still likely to outperform the rest of Asean [Association of Southeast Asian Nations] and remain the bright spot throughout the whole Asia,” Ng said.
Infra, PPP projects expected
The economist stressed that private consumption in the country is likely to continue to underpin GDP growth, while investment, external demand and oil prices are likely to be the swing factors for 2015 growth.
“More infrastructure development and PPP projects could create upside to GDP growth in 2015 and 2016,” Ng said.
To date, nine public-private partnership infrastructure projects worth $2.9 billion have been awarded since 2010. The government aims to award and implement more of such projects this year, with more than 15 in the bidding stage.
Ng expects better external demand boosting the local manufacturing sector, particularly export-oriented industries, although he sees stronger export growth momentum manifesting only in the second half of the year.
Imports growth has been falling as indicative of the lower value of energy imports. But Ng sees this as margin-positive.
“This trend may boost producers’ profit margins and domestic consumption. Lower energy prices should provide some upside to the trade and current account balances, given that imports of mineral fuels constituted more than 20 percent of total imports in 2014,” he said.