• UPDATE 2: BSP keeps rates steady


     (Updates with comments from analysts)

    The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided to pause its tightening cycle, keeping the existing rates for overnight borrowing and lending, as well as the special deposit account (SDA) and the reserve requirement ratio (RRR) for banks unchanged.

    “The Monetary Board’s decision is based on its assessment of a more manageable inflation environment, based on the latest baseline projections indicating within-target inflation for the policy horizon,” BSP Governor Amando Tetangco Jr. said in an announcement right after the Monetary Board meeting on Thursday.

    The rate for the overnight borrowing, or reverse repurchase (RRP) facility, stays at 4.0 percent and the rate for overnight lending, or repurchase facility remains at 6.0 percent.

    The interest rate for SDA was also left unchanged at 2.50 percent, as well as the 20-percent RRR for banks.

    Tetangco said the latest forecasts show a lower-inflation path for 2014 to 2016, reflecting easing pressures on commodity prices.

    “Inflation expectations have also remained broadly stable and aligned to the inflation target. At the same time, domestic demand conditions continue to be resilient, supported by adequate domestic liquidity and robust bank lending growth,” he said.

    The Monetary Board noted that the risks to the inflation outlook are broadly balanced, with potential price pressures emanating from pending petitions for adjustments in utility rates and possible power shortages.

    The central bank also trimmed its inflation forecast for full-year 2014 to 4.4 percent from the previous forecast of 4.5 percent. For 2015, the forecast was also adjusted downward to 3.7 percent from 3.8 percent. For 2016, it was adjusted to 2.8 percent from the previous 3 percent.

    Meanwhile, Guinigundo said global economic prospects are likely to stay uneven, thus mitigating upward pressures from commodity price going forward.

    “Given these considerations, the Monetary Board deemed it prudent for the time being to allow previous monetary responses to continue to work their way through the economy,” he said.

    Guinigundo noted that the central bank will remain vigilant against development that could affect the outlook for inflation and financial stability and prepared to take appropriate policy action as necessary to safeguard its price and financial stability objectives.

    Rahul Bajoria, economist at UK-based investment bank Barclays said the BSP was more balanced in its statement, as a more manageable inflation outlook due to fall in oil prices creates room to evaluate the impact of previous rate hikes.

    “The BSP’s latest commentary is more balanced than [at]its meeting in September, when it displayed a clear hawkish bias,” he said.

    The Barclays economist said the next policy move is only likely to come next year with a 25-basis point rate hike in the second quarter of 2015, as strong growth and increases in inflation should provide the basis for the BSP to tighten policy, albeit in a gradual manner. MAYVELIN U. CARABALLO


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