Bangko Sentral ng Pilipinas will likely keep policy settings steady in the near term on low oil prices and strong economic growth this year, a bank economist said in a report Wednesday.
Joey Cuyegkeng, senior economist of ING Bank Manila, said this view got support
from the failed Doha meeting about freezing oil output. He said downside risks to the 2017 inflation forecast had increased in the absence of an agreement to freeze oil production.
“Excess oil supply situation is then expected to persist and the balancing of demand and supply conditions this year is less likely with expectations now pushed later to mid- 2017,” Cuyegkeng said.
He said Philippine economic growth was expected to improve this year on the back of stronger government spending, private consumption, election spending and fixed capital investments.
“The risk that we have priced in for a policy rate hike later this year related to inflation management. We still expect inflation to trend higher to average at 1.8 percent in 2016 and around 3 percent in 2017,” he said.
He said stronger economic growth in the major economies would accelerate the timing of a more balanced oil supply environment and would exert some upward pressure on commodity prices.
The last time the Monetary Board changed the policy stance was in September 2014, when overnight borrowing rate was increased to 4 percent and overnight lending rate was adjusted to 6 percent.
The board kept the benchmark interest rates steady on its March 23, 2016 meeting, the 12th consecutive time since October 2014 due to a manageable inflation environment.
The economy grew 5.8 percent in 2015, lower than 6.1 percent a year ago and the government’s target range of 7 to 8 percent, but remained one of the fastest growing in the region.
This year, the government expects GDP to grow between 6.8 percent and 7.8 percent on sustained robust domestic demand.
Inflation in the first quarter averaged 1.1 percent, below the government’s official forecast range of 2 percent to 4 percent. Inflation in January decelerated to 1.3 percent from 1.4 percent in December 2015.
Inflation further slowed to 0.9 percent in February before picking up to 1.1 percent in March because of slight increases in food prices.
Inflation averaged 1.4 percent, slower than 4.1 percent in 2014.