The Monetary Board of Bangko Sentral ng Pilipinas will likely keep the benchmark interest rates steady in its meeting on Thursday, amid the low-inflation environment, foreign banks said Monday.
“Expect no rate changes from Bangko Sentral ng Pilipinas this week. Indeed, the BSP is likely to keep rates steady for some time,” DBS Bank of Singapore said in a report.
J.P. Morgan Chase Bank said the Bangko Sentral might keep the policy rates steady for the ninth time since October 2014, due to the manageable inflation environment.
It said the benign inflation gave room for Bangko Sentral to keep policy rates on hold.
Bangko Sentral in its last meeting kept interest rates unchanged at 4 percent for overnight borrowing and 6 percent for overnight lending as inflation reached a record low this year.
Inflation stayed at 0.4 percent in October, bringing the first 10 months’ average to 1.5 percent, lower than the government’s official target range of 2 percent to 4 percent this year.
“It will be interesting, though, to watch for cues from the central bank, given that inflation is set to miss the target by averaging circa 1.5 percent this year,” DBS said.
“While some inflationary risks persist due to the El Niño effect, CPI [consumer price index]
inflation is likely to be in the lower half of the BSP official target next year as well. There is probably some room for monetary easing but the BSP is not in a hurry,” DBS said.
Bangko Sentral would probably watch the US Federal Reserve, given the lingering uncertainties on the timing of its planned interest rates hike, it said.
“Not that the BSP is extremely worried on this front, however, since external financing risks are very much manageable for the Philippines. Most importantly, as long as GDP growth momentum remains strong, there is no urgency to loosen policy at this juncture,” DBS said.
The bank said focus would be on the third-quarter GDP data which would be released later this month. It said other than a slight disappointment on external demand, data were generally supportive of GDP growth in the economy.
GDP growth averaged 5.3 percent in the first half, lower than the government’s target of 7 percent to 8 percent this year. “Our forecast of GDP growth at 5.7 percent for 2015 is based on sustained support from both domestic consumption and investment growth. Any disappointment on this front may raise the odds of a policy easing going forward,” the bank said.
Meanwhile, Hongkong and Shanghai Banking Corp. said the frequent guidance from Bangko Sentral gave the markets a sense of certainty about Philippine monetary policy, which was “a welcome respite from the monetary policy uncertainty in Asia these days.”
“For the time being, the BSP remains justifiably focused on inflation risks stemming from El Niño. Accordingly, the central bank is likely looking through the record-low 0.4 percent year-on-year CPI print in October. Fortunately, we think that broad disinflation should mostly offset higher food and utilities prices,” HSBC said.
The British bank also said there was little that Bangko Sentral could do for now. “However, 2016 will be a pivotal year for the BSP as the interest rate corridor framework is introduced alongside policy, inflation and external growth uncertainties,” it said.