BSP seen to keep rates steady

MANILA, Philippines - Monetary authorities are expected to keep policy rates steady at least until the second quarter of next year on benign inflation outlook, three banks said in separate research notes yesterday.

This, following the central bank’s decision to maintain overnight borrowing and lending rates at 3.5 percent and 5.5 percent, respectively.

“With a favorable growth-inflation trade-off we expect the BSP to keep the policy rate unchanged at 3.5 percent until mid-2014,” Prakriti Sofat, regional economist at UK-based Barclays, said in a research note.

“As inflation heads towards the mid-point of the target range we expect the central bank to hike the policy rate by 25 basis points to 3.75 percent in third quarter of 2014,” she continued.

Sofat further said she expects the BSP to use macroprudential measures in managing the pace of credit growth in the country, particularly in the real estate sector for the next six to nine months.

At the same time, Trinh Nguyen, economist at the Hongkong and Shanghai Banking Corp. Ltd. (HSBC), also expects the BSP to only adjust rates in the second semester of 2014.

“We do not expect policy to change until the second half of 2014, as inflation is expected to stay benign until then and growth momentum is still robust,” Nguyen said in a separate research note yesterday.

She pointed out the rise in domestic prices has remained stable despite weather disturbances that hit the country during the year and expects this to continue in the next six months.

“Inflation, despite stormy weather and strong growth, remains very manageable in the next six months,” Nguyen said.

“The work for the central bank is largely done, as liquidity, growth, and inflation trends are more than satisfactory,” Nguyen added.

Inflation averaged 2.8 percent in the first nine months of the year below the central bank’s target of three to five percent.

The BSP expects inflation to settle at three percent this year, the low end of its target.

Meanwhile, Singapore-based DBS Bank sees a 25-basis-point hike in key policy rates during the second quarter of next year.

“The BSP is likely to avoid overheating the economy and may start to gradually normalize its monetary policy in first half of 2014,” DBS said.

“This is especially so given GDP (gross domestic product) growth is still likely to remain in the high six percent year-on-year in 2014,” DBS added.

The BSP has kept rates unchanged since the start of the year, citing manageable inflation outlook and expectations and robust economic growth.