BSP to maintain rates — economists
THE BANGKO SENTRAL ng Pilipinas (BSP) is widely expected to keep policy rates unchanged at its meeting this week, according to analysts asked by Business
World late last week who said that local conditions showed no need for intervention as market participants await fresh leads from the United States.
Nine economists said that the Monetary Board will likely hold fire on any policy adjustment during its review this Thursday, which will come right after a similar rate-setting meeting by the US Federal Reserve on Sept. 19-20.
“Policy rates remain stable and within targeted limits despite accelerated inflation. There are no remedial measures to apply…,” said Emmanuel J. Lopez, chairman of the University of Santo Tomas Department of Economics.
Inflation averaged 3.1% in the first eight months of the year even as price increases picked up to 3.1% last month. The year-to-date average falls within the central bank’s 2-4% target band and is a notch below the 3.2% full-year estimate which the BSP announced at the end of its August 10 policy review.
The central bank has kept policy interest rates steady since a hike in September 2014, except for procedural cuts announced in June last year to pave the way for the shift to an interest rate corridor scheme that is designed to better siphon excess liquidity and influence market rates.
Ildemarc C. Bautista, vice-president and head of research at Metropolitan Bank & Trust Co., said the central bank has room to keep interest rates steady for the rest of 2017 as inflation trends remain well within projections.
External developments also do not put much pressure on the local central bank to tweak rates despite heightened volatility.
“As far as reactions to potential Fed rate movements are concerned, there’s a general sense that monetary policy in
the ASEAN region will not follow the Fed’s lead, at least for now,” Mr. Bautista said, referring to the Association of Southeast Asian Nations.
“The BSP has said as much as well, so they will focus more on domestic issues and would be data-driven rather than ‘Feddriven’.”
GUESSING GAME
All eyes are now on the Fed’s Sept. 19-20 meeting as market participants watch for hints on the timing of the planned unwinding of its bond portfolios, as well as whether a 25-basis-point rate increase remains on the table by December.
Two analysts, however, said the BSP may still have to raise rates just before the year ends in order to catch up with rising global yields.
“Next week might be too soon for a BSP interest rate increase, although a rate hike cannot be eliminated given the accelerating trend in consumer prices,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.
In particular, Mr. Dumalagan said increasing policy interest rates could be a “preemptive measure” ahead of an expected rate hike in the US, as well as to temper capital outflows which could flee the country in search of better returns.
ANZ Research economist Eugenia Fabon Victorino said separately that the BSP may be pressed to tighten policy settings to address issues of rapid credit growth, “excessive” real estate activity, and a current account deficit.
Central bank officials have said that they continue to “pay close attention” to gross domestic product growth and liquidity dynamics as they carry out their mandate to keep prices stable, even as they noted that volatilities abroad could affect local economic prospects.