Monetary policy steady for now — poll

THE BANGKO SENTRAL ng Pilipinas (BSP) is likely to keep monetary policy unchanged during its meeting this Thursday, according to analysts asked by BusinessWorld

late last week, with the central bank anticipating external events — particularly as the United States readies another rate hike — amid few concerns on the domestic front. All 10 economists asked by

BusinessWorld said they expect the Monetary Board to hold off any adjustment to its policy stance in its meeting this week, which comes a week after the Federal Reserve delayed a “lift-off ” of US benchmark rates and just days after the much- anticipated US presidential elections that has been rattling global markets.

Analysts said they expect monetary authorities will adopt a wait-and-see approach as far as offshore developments are concerned, at a time of heightened global market volatility.

“I think BSP will not move interest rates ahead of the Fed. They will be likely to see exactly how the Fed will position the US economy before deciding what would be suitable for the Philippines,” said Emmanuel A. Leyco, public finance and policy professor at the Asian Institute of Management.

The Fed kept interest rates unchanged during its Nov. 1- 2 meeting, as expected, days before the Nov. 8 elections that will see either Hillary R. Clinton or Donald J. Trump succeed President Barack H. Obama at the helm of the world’s biggest economy.

Fed chair Janet L. Yellen said Federal Open Market Committee members observed that the case for higher rates in the US has “continued to strengthen,” but opted to “wait for some further evidence” that the economy is indeed ripe for such a hike.

“Since the US postponed again its policy rate hike, I think rates for the BSP will remain the same in the Nov. 10 meeting,” said Mitzie Irene P. Conchada, vicedean at the De La Salle University School of Economics, noting that “[e]conomic fundamentals in the country are stable.”

“But perhaps in the months after the US elections and when the Fed decides to adjust its rate, the BSP might reconsider,” Ms. Conchada added.

“In the meantime, our policy rates will remain the same.”

Nicholas Antonio T. Mapa, associate economist at the Bank of the Philippine Islands, pointed out that the central bank had readied the economy in 2014 for expected Fed rate normalization after nearly a decade of near-zero levels.

The first hike took place in December last year, and another could be in the cards by yearend.

“BSP should be on hold throughout 2016 and perhaps until the end of (Mr.) Tetangco’s term…” Mr. Mapa said, referring to BSP Governor Amando M. Tetangco, Jr. who will end his second six-year term on July 2 next year.

“The Fed decision will of course be taken into consideration, as will the eventual rate hike in December and this is why the BSP carried out pre-emptive strikes in the past (50-basis-point hikes in 2014) ahead of the Fed’s own 50 bps hike total in the past two years.”

“The BSP has enough elbow room to assess the current global and domestic landscape and the economy does seem to be on almost perfect footing.”

The central bank has kept its policy stance steady since a hike in September 2014, with the only change seen last June as the BSP introduced “operational” tweaks to usher in an interest rate corridor system. The benchmark overnight reverse repurchase rate was cut to 3% from 4%, while the overnight lending rate moved to 3.5% from 6%, which came as the BSP started operating the term deposit facility to capture excess money supply in the financial system. The floor remained at 2.5%, now called the overnight deposit rate.

Mr. Mapa, however, said the BSP may be “called into action” should the Fed proceed with raising rates next year, in order to control inflation from going beyond target.

NO IMMEDIATE INFLATION THREAT

Analysts polled also noted that there is no immediate pressure at home to change policy, especially as domestic demand remains robust and with inflation rising within expectation.

“There is no immediate inflation threat,” said Victor A. Abola, economics professor at the University of Asia & the Pacific, noting that the looming Fed rate increase “has been already anticipated” and priced in by the market for debt papers with short- and long-term yields.

“[ W]ith inflationary pressures still moderate, the BSP can afford to maintain current monetary policy settings in order to assess the outcome of the US elections and the Fed’s rate decision in December,” added Rajiv Biswas, Asia- Pacific chief economist at IHS Markit.

Inflation steadied at 2.3% in October from September to mark the second straight month that the annual general increase in prices of widely used goods and services fell within the central bank’s 2-4% target band.

Still, year- to- date inflation stood at 1.6%, a notch below the BSP’s 1.7% forecast average for the full year.

ANZ Research economist Eugenia Fabon Victorino noted that strong domestic demand, coupled with continued resurgence in factory output and benign inflation, should enable the central bank to keep rates steady.

Socioeconomic Planning Secretary Ernesto M. Pernia had said in a press briefing on Thursday last week that he expected economic growth to have hovered above 6% last quarter, ranging from 6.3% to 7.3%.

Increased state infrastructure spending likely supported further growth in the July- September period even in the absence of a onetime boost from election-related expenses that had fueled secondquarter expansion at 7% — the fastest pace in three years.

Economic growth averaged 6.9% last semester, close to the higher end of the government’s 6-7% growth goal for the entire 2016. The Philippine Statistics Authority is set to report thirdquarter gross domestic product data on Nov. 17.

The analysts said any policy adjustment by the BSP may be expected some time next year at the earliest, with the first move likely to be the long-planned cut in the 20% reserve requirement ratio imposed on big banks possibly within the first quarter.

Timing for such a move will be tied to results of the BSP’s term deposit auctions, which seek to capture excess money supply in the local financial system.

After this week’s meeting, the Monetary Board will hold its last policy review for the year on Dec. 22, the week after the Fed’s Dec. 13-14 meeting that could see US benchmark rates raised a year after a 25-basis-point hike introduced in December 2015.