Hongkong and Shanghai Banking Corp. does not expect the Bangko Sentral ng Pilipinas to tweak its policy stance next week amid the continued robust economy and the easing of inflation in the past four months.
“With economic conditions relatively calm over in the archipelago, we think the BSP remains sanguine and unperturbed; we therefore expect it to hold its policy rate at 6.25 percent in the MB meeting next week,” HSBC said in a report Friday.
The bank also took note of the move by the US Federal Reserve on Wednesday when it decided to keep rates unchanged but hinted at two more hikes by the end of this year.
“Since the Monetary Board meeting last month, things have been calm and steady in the archipelago in the lead-up to the next meeting… When the Bangko Sentral ng Pilipinas first paused its tightening cycle at 6.25 percent last month, we flagged that risks in the policy rate outlook were heavily tilted to the upside,” the bank said.
HSBC said the BSP might resume its tightening cycle if pressures on the peso stoke concerns over inflation, or if core inflation becomes stickier than expected.
“However, neither of these risks have materialized since the MB meeting. The yield differential between the BSP and the Fed rates did not narrow, with the Fed just deciding to hold its policy rate for now, thus easing the pressure on the PHP,” it said.
It said core inflation—which is the change in prices of goods and services except for those from the food and energy sectors—-continued to decelerate on a sequential basis.
Adding confidence to the central bank’s decision, it said, is the well-timed cut to the reserve requirement ratio by June 30. The RRR cut will coincide with the expiry of the pandemic-era relief measure on reserves, making the RRR cut liquidity-neutral to a certain extent.
“We think the inflation outlook to the end of 2023 will continue to improve. Headline CPI will likely continue to tread back to the BSP’s 2-4 percent target band as favorable base effects kick in throughout the year,” it said.
Inflation surpassed the target range last year and peaked at 8.7 percent in January. It slowed to 8.6 percent in February, 7.6 percent in March, 6.6 percent in April and 6.1 percent in May.
BSP deputy governor Francisco Dakila Jr. said monetary authorities would continue to be data dependent when it comes to decisions on the policy stance.
Dakila said the latest outturns of inflation gave the BSP the space to maintain the policy rate in the last meeting.
“For now, we see inflation going back to the target range [of 2 to 4 percent] in the fourth quarter,” Dakila said.
