BSP rate hike likely this year

Foreign banks expect between 25-50 bps

The Bangko Sentral ng Pilipinas (BSP) is expected to raise interest rates this year, ING Bank and the Australia and New Zealand Banking Group said in separate research reports.

Tim Condon, Asia chief economist at ING Bank, said the Philippine central bank would likely hike interest rates by 25 basis points within the year.

“With one of Asia’s healthiest economies it is a consensus view that the BSP’s next move is up,” Condon said.

The Dutch financial giant sees the country’s gross domestic product ( GDP) growth accelerating to 6.2 percent this year from 5.8 percent last year.

“We think the threat to growth from global economic developments rather than anything Philippines-specific is behind the forecast revisions,” he added.

Inflation is expected to pick up to two percent this year from 1.4 percent the previous year amid El Niño threat to food prices and increases in taxes on tobacco and alcohol products and tariffs on electricity.

For her part, ANZ Bank economist Eugenia Fabon Victorino said the Philippine central bank would likely hike interest rates in the second half of the year depending on the impact of the interest rate corridor (IRC) system, slated for implementation in the second quarter.

“We stand by our expectation that the BSP will likely maintain its monetary policy settings through the first half. Although we are pencilling in a total of 50 basis points of rate hikes in the second half of 2016, this is contingent on how the BSP will implement the interest rate corridor system,” she said.

The investment bank believes the 18 to 22 months of lag in monetary policy transmission points to a need to tighten monetary conditions by the third quarter of the year.

ANZ Bank projects the country’s GDP to grow 6.1 percent this year before easing to 5.8 percent in 2017.

“Of all the economies in the Asean, the Philippines seems almost perfectly positioned to benefit from the global and regional backdrop that is tilting towards services,” Victorino added.

Last Thursday, the BSP’s Monetary Board kept interest rates unchanged for 11 straight policysetting meetings since October 2014 as risks to inflation slightly shifted to the downside while domestic demand remained firm.

The overnight borrowing rate is currently pegged at four percent while the overnight lending rate is at six percent. The interest rates on special deposit accounts remained at 2.5 percent while the reserve requirement ratios were also left unchanged.