BSP won’t change rates this week, analysts say

MONETARY authorities are seen keeping interest rates unchanged this week amid stable inflation and the economy’s steady growth pace.

This follows the US Federal Reserve’s own decision last week to keep American interest rates at record lows, amid heavy anticipation from analysts. Banks at the weekend said before making its own move, the Bangko Sentral ng Pilipinas (BSP) may choose to assess the impact of the Fed’s latest decision.

“Local monetary authorities do not seem to be worried about inflation or growth even if they are both below trend, below their own target, and below market expectations,” BPI lead economist Emilio Neri Jr. said in a note to investors.

The BSP’s policymaking Monetary Board will meet this Thursday to determine the appropriate level of interest rates.

The BSP’s main goal is to protect consumers’ purchasing power by keeping prices stable. This is done through interest rate adjustments, or the premiums asked for by banks when lending to the public.

The BSP also manages the amount of money circulating in the economy through various policy tools.

Easing policy settings brings down the cost of money and spurs demand in the economy, but also risks stoking inflationary pressures. Conversely, tightening policy settings through rate hikes can stem inflation at the risk of stunting growth.

Benchmark overnight borrowing and lending rates set by the BSP currently stand at 4 and 6 percent, respectively. Both are just half a percentage point above their respective record lows.

“Domestic growth remains robust, which does not support the case for rate cuts, in our view. Inflation is also likely to rebound after slowing to record low levels in recent months,” Standard Chartered economist Jeff Ng said in a separate note.

“As monetary conditions remain tight, we think the BSP can afford to delay rate hikes,” he said.

In the second quarter of 2015, the economy grew by 5.6 percent, faster than the first quarter’s expansion of 5 percent. Meanwhile, inflation reached a record low of 0.6 percent in August.

The BSP expects full-year inflation to be below the official target range of 2 to 4 percent.