BSP says outlook ‘strong’ but banks see case for hike
THE CENTRAL BANK said that the outlook for growth remains strong — even as the economy expanded less than anticipated in the first quarter — signaling that its current monetary policy remains appropriate although economists continue to expect hawkish moves later this year.
Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. said the 6.4% gross domestic product (GDP) growth continued to point to an upbeat momentum for the year, even as the GDP reading fell below the government’s official 6.57.5% target range and the 6.8% median forecast in a BusinessWorld poll.
“The outlook for growth remains strong, even as the Q1 outturn is slower than market antici-
pated,” Mr. Tetangco said in a text message to reporters, while noting that the central bank “will continue to provide an operating environment that would support noninflationary domestic demand.”
“As in the past, we will continue to calibrate our policy levers so these provide the appropriate incentive structure for businesses to plan with risk-adjusted returns in mind.”
The government attributed the slower growth last quarter to base effects in the absence of electionrelated spending that was seen during the same period in 2016, even as exports and farm output rebounded during the period.
BSP Deputy Governor Diwa C. Guinigundo said current borrowing rates have proven appropriate in sustaining the country’s rosy growth story.
“In the last meeting of the Monetary Board, it was clarified that there is no basis for a change in policy. Output dynamics is an important consideration of monetary policy, but promoting price stability is our fundamental basis in reviewing monetary policy,” Mr. Guinigundo said in a separate text message.
“With economic growth continuing to be generally robust and inflation readings showing some uptrends, it is difficult to even think of monetary easing.”
The BSP kept policy rates unchanged during its meeting last week, citing manageable inflation and firm domestic activity. Inflation logged 3.4% in April, which brought the four-month average to 3.2%, well within the central bank’s 2-4% target band.
This marked the 21st straight meeting when the BSP stood pat on its monetary policy stance, except for procedural cuts introduced in June 2016 to usher in the shift to an interest rate corridor. At present, the main policy rate stands at 3%, with the floor and ceiling rates at 2.5% and 3.5%, respectively.
RATE CALL STAYS
On the other hand, several economists said conditions are ripe for the central bank to consider raising rates this year.
“In an environment of strong growth and rising inflation, our call for tightening in monetary policy to start in Q3 remains,” ANZ Research economist Eugenia Fabon Victorino said in a market commentary sent yesterday, referring to the bank’s forecast of two rate increases this year and three more in 2018.
Analysts have said that the BSP will likely turn more hawkish in the coming months, and will soon see the need to raise rates by 25 basis points after the US Federal Reserve pursues another round of tightening expected in June, which would be the second “liftoff ” for the year.
Tim Condon, chief economist for ING Bank Asia, said that while a rate hike may be in the offing, the BSP still has ample space to hold fire on policy rates: “The slower GDP growth could prompt a reassessment of the monetary policy path, where the consensus is forecasting two 25bp rate hikes to 3.50% in the second half of the year.”
“With inflation evidently wellanchored the BSP could entertain a prolonged period of steady policy settings,” Mr. Condon added.
Analysts from DBS Bank, Security Bank Corp., and IHS Markit have retained their 6.4% estimate for full-year GDP growth, saying that prospects remain strong even though the forecast would slow down from a 6.9% climb in 2016.
If realized, that consensus estimate meant the government will miss its growth goal for the year. Economic managers, however, said the Philippines remains on track to hit its growth goal with its aggressive infrastructure spending plan seen to pick up steam later this year.
Research firm Capital Economics sees a 6.5% GDP growth this year, while Nomura bank expects a 6.7% pace. For its part, the International Monetary Fund is seeing a 6.8% climb for the Philippine economy this 2017.