BSP seen keeping rates until 2016 – FMIC

With low inflation and manageable liquidity condition it is likely the central bank will hold current policy stance until 2016, according to First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P).

In its latest “Market Call” issue, the Metrobank-owned FMIC said the long end of it is that the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) could keep steady interest rates for longer than most anticipate which was for most of the year.

FMIC-UA&P said that since inflation rates are at the low end of target and money growth is below 10 percent, the BSP will “take a long pause in its monetary tightening cycle until early 2016.”

Until June this year, the outlook is unchanged. “With inflation still on a downtrend and money growth remaining soft, monetary policy will likely stay on hold for the rest of the first half. If at all there be a change in the second quarter it should be biased towards easing considering similar moves in the rest of the region,” the report said.

FMIC-UA&P expects inflation in May will be lower at 2.1 percent from April’s 2.2 percent.

Inflation for the next months, in June and July, is also expected to remain low at 2.1 percent and 1.9 percent, respectively.

“Stable food prices and soft oil prices reinforce our view that inflation will likely trek the downward path,” according to the report.

As for the exchange rate, FMICUA&P maintained that there is “reasonable” basis for the central bank to restock the Philippines’ foreign exchange hoard which fell short of the target last year.

Rebuilding the gross international reserves, it said, will “allow the peso to weaken given the country’s robust economic fundamentals relative to the US economy and interest rates, as well as monetary easing in emerging economies.”

FMIC-UA&P predicts the peso versus the US dollar will appreciate to

in June and to by July. “The peso-dollar rate will likely remain between and since the BSP appears unwilling to buy surplus dollars,” it noted. “(BSP) seems to prefer a ‘strong’ currency instead of a competitive currency that would translate into stronger domestic spending and employment.”