Market expects no change in rates
MB meets today
The local markets are not expecting any changes in monetary policy when central bank officials meet on Thursday, a week after the US Federal Reserve raised rates for the second time in three months.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. has commented that adjusting rates is not likely at this time given that the US Fed action last March 15 has been anticipated while domestic inflation is still predictable.
He reiterated that the US rate normalization continue to be part of “valuable market information” that the heavily datadependent Monetary Board relies on. The US rates hike, Tetangco said, “can be seen as positive for risk sentiment in the near term.”
The BSP’s own policy stance has hardly moved, its last change was in September, 2014 when it raised rates by 25 basis points. However in June last year it shifted to the interest rate corridor framework which many view as a defacto easing.
East West Bank president and CEO Antonio Moncupa Jr., echoing market sentiments, yesterday said he thinks the BSP will keep rates unchanged on March 23.
Moncupa also commented on the peso movement which he said may “avoid depreciation” following recent US Fed move. In the next meetings, the BSP is seen probably making changes in the key overnight rates. “Given all these, we share the market view that interest rates are expected to rise this year. Even while the BSP is not expected to raise its policy rate in its March 23 meeting, we share the market view of a likely increase in May and/or June.”
Market players expecting the BSP to raise rates this year include Swiss financial giant UBS but British bank Standard and Chartered Bank does not think this will happen.
UBS said the BSP is expected to hike policy rate by 50bps by the end of the year with an accelerating inflation and weakened peso, according to its economist Edward Teather. UBS expects inflation to increase to 3.7 percent this year, still within the BSP’s target of two percent to four percent.
Stanchart economists do not see any policy rate adjustments for 2017 but they expect BSP to slash banks’ reserve requirement ratio in the first half of the year from 20 percent to 15 percent. The BSP has indicated intentions to lower reserve ratios after introducing the interest rate corridor system last year.
While the bank estimate inflation to gradually increase this year to about an average of three percent, they do not think this will be enough for a policy rate change, mainly because inflation increases are due to low base effects.
Based on the Monetary Board’s last policy meeting minutes (February 23), the BSP stated that it will be mainly the increase in oil prices and transport fare hikes that will pull up inflation higher in the next two years.
According to the central bank’s January, 2017 survey of private sector economists, the review showed higher mean inflation forecasts for 2017 at 3.1 percent from three percent previously (December, 2016). For 2018, the inflation estimate was also raised to 3.3 percent from 3.1 percent while the ean inflation forecast for 2019 was at 3.3 percent. (With Reuters report)