StanChart sees BSP keeping rates steady

Standard Chartered Bank sees the Bangko Sentral ng Pilipinas (BSP) keeping interest rates steady as monetary authorities monitor the impact of the decision of the US Federal Reserve to keep near-zero policy rates unchanged.

“As monetary conditions remain tight, we think the BSP can afford to delay rate hikes. The BSP is likely to gauge the market reaction to the US Fed’s policy rate decision before making a move,” said Jeff Ng, the bank’s regional economist for Asia.

“We expect the BSP to keep the reverse repo rate and the special deposit account rate unchanged, at four percent and 2.5 percent, respectively,” he added.

The BSP’s Monetary Board raised policy rates by 50 basis points last year. This brought the overnight borrowing and lending rates to four and six percent, respectively. The moves, together with a one- percent adjustment in reserve requirements, were meant to siphon off excess liquidity in the financial system.

At present though, Ng said the Philippine economy continues to be “robust” and not needing any support. Inflation, on the other hand, is likely to pick up from its record-low result.

“GDP growth improved in the second quarter after slowing in first quarter, allaying concerns about a further slowdown. Domestic growth remains robust, which does not support the case for rate cuts, in our view,” Ng explained.

“Inflation is also likely to rebound after slowing to record low levels in recent months,” he added.

Growth in the country’s gross domestic product (GDP) accelerated to 5.6 percent in the second quarter from the revised five percent in the first quarter amid improving government spending.

For the first semester, economic output expanded by 5.3 percent. Government economic managers penned a GDP growth target of between seven percent and eight percent this year.

On the other hand, inflation eased to a new record low of 0.6 percent in August amid stable food prices and cheaper power rates. This brought to 1.9 percent the average inflation in the first eight months, slightly below the BSP target range of two- to four-percent.

Earlier, BSP Governor Amando Tetangco Jr. said the central bank would monitor developments after the US Fed kept its key policy rates on hold last week, citing global market uncertainty.

“We will watch market price action to see how market is digesting the Fed’s move, check for impact of portfolio flows on domestic liquidity, and evaluate new inflation forecasts, to see if there is a need to fine tune policy levers or communication,” Tetangco added.