Analysts see two BSP rate hikes this year
THE BANGKO SENTRAL ng Pilipinas (BSP) will likely hold fire on policy settings this Thursday despite last week’s widely expected rate hike in the United States, although some analysts expect up to two increases later this year in the face of rising inflation and a weakening peso.
All 10 economists asked by BusinessWorld agree that the central bank will keep policy rates steady when its Monetary Board meets on Thursday, in keeping with BSP Governor Amando M. Tetangco, Jr.’s own signals that there is no “urgent” need for adjustments for now.
Mr. Tetangco last week said there remains room for the BSP to stand pat on current borrowing rates despite a fresh 25-basis-point increase announced by the US Federal Reserve last week, as markets have already priced in its impact and with local economic activity expected to remain robust.
The benchmark borrowing rate currently stands at three percent, while overnight lending and overnight deposit rates are at 3.5% and 2.5%, respectively.
“The BSP is unlikely to adjust its policy rates this month, especially since there was no change in the Fed’s projected path of interest rate normalization,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.
Fed Chair Janet L. Yellen hinted that the Fed is keeping its plan of two more rate hikes this year and three in 2018, adding that future rate increases will be “gradual.”
Rajiv Biswas, Asia- Pacific economist at IHS Markit, added that the BSP can afford to keep its “wait- and- see” approach to assess the near- term impact of the Fed hike.
If realized, this will mark the 20th straight meeting that the BSP will keep its policy stance unchanged.
“I believe the BSP’s current monetary policy stance is still appropriate in supporting the
growth momentum of the Philippine economy,” said Angelo B. Taningco, economist at Security Bank Corp.
“Also, the country’s inflation has remained manageable with the latest headline inflation rate staying within the BSP’s inflation target range.”
Inflation hit a two-year high in February at 3.3% which brought the year-to-date average to three percent, at the midpoint of the central bank’s 2-4% target band for 2016.
The BSP expects inflation to average 3.5% this year and 3.1% in 2018, although Mr. Tetangco has said monetary authorities will “refresh” these forecasts.
At the same time, however, some of the economists polled last week expect monetary authorities to drop some hints on possible tightening later this year.
MORE HAWKISH BSP EXPECTED
“If our base case materializes and BSP stays on hold, we think the policy statement will become decisively more hawkish, which should set the stage for back-toback policy rate hikes at the subsequent two meetings on 11 May and 22 June,” according to Nomura’s Euben Paracuelles, even as he cited a 30-40% chance of a rate hike from the BSP this week.
Mr. Paracuelles pointed out other “considerations” in timing the BSP’s next moves, such as liquidity conditions as seen under the weekly term deposit auctions, and “uncertainty” ahead of the appointment of a new governor by July.
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, expects rate increases during the BSP’s June and December rate-setting meetings, saying: “These policy rate hikes will be on the premise that the peso movement needs to be tamed. This forecast is also in support of my view that the peso will trade between the range of P50 and 52 this 2017.”
The peso touched fresh 10year lows in recent weeks, having traded weaker than P50 to the dollar since Feb. 17 in the face of heightened uncertainty running up to the Fed’s decision. Hence, the local unit has breached the P48-50 range assumed by the BSP in December.
Analysts polled widely expect the central bank to leave the 20% reserve requirement steady as the market remains awash with liquidity.