Bangko Sentral ng Pilipinas is expected to keep the benchmark interest rates unchanged this year, as the country’s external position remains robust, Barclays Bank said in a report Monday.
“Although there is external uncertainty in the form of a slowing global economy, we think the Philippines’ strong external position and low level of short-term debt provide the BSP with enough policy space to maintain an accommodative stance,” the British bank said.
“We continue to expect the next policy move to be a hike, but with growth likely to show a modest slowdown [2016 forecast of 5.5 percent], we see BSP hiking rates only in the second quarter of 2017,” it said.
Barclays said a rate hike would only materialize “if growth has recovered sufficiently and inflation is high enough to justify an increase in rates.”
The economy expanded 5.8 percent in 2015, slower than 6.1 percent in 2014, but remained one of the fastest growing in the Asian region.
The government is keeping its gross domestic product growth target of 7 percent to 8 percent in 2016, on the back of strong domestic demand and accelerated public spending.
Meanwhile, inflation last year averaged 1.4 percent, below the government’s official target of 2 percent to 4 percent.
The Monetary Board, the policy-making body of Bangko Sentral, kept the benchmark interest rates steady last week for the eleventh consecutive time since October 2014 due to low inflation environment and positive economic growth.
It kept interest rates unchanged at 4 percent for overnight borrowing and 6 percent for overnight lending.
Bangko Sentral Governor Amando Tetangco Jr. said the Monetary Board’s assessment of manageable inflation dynamics and robust growth conditions continued to support steady monetary policy settings.
He said the average inflation was projected to settle within the target range of 2 percent to 4 percent for 2016 to 2017, as inflation expectations remained firmly anchored.
The Monetary Board also noted that risks surrounding the inflation outlook had shifted slightly to the downside. Downward pressures on inflation could arise from slower-than-expected global economic activity and potential second-round effects from lower international oil prices, while upside risks could come from the impact of prolonged El Niño dry spell.