BSP seen keeping key rates

MANILA, Philippines - Singapore-based DBS Bank Ltd. said yesterday key policy rates will likely be left unchanged when the Bangko Sentral ng Pilipinas (BSP) meets this week.

The bank said the central bank may maintain the overnight borrowing and overnight lending rates at four percent and six percent as inflation continued to ease and economic growth decelerated.

“GDP (gross domestic product) growth disappointed in third quarter on slower fiscal spending and the most recent budget data suggests that fiscal spending has not picked up as yet in October,” DBS said.

“Meanwhile, CPI (consumer price index) slowed to a one-year low of 3.7 percent in November, on lower crude oil prices,” it said.

Philippine economic growth declined to 5.3 percent in the third quarter from six percent in the second quarter, way below the government’s full-year target of a 6.5- to 7.5-percent expansion.

At the same time, inflation eased to 3.7 percent in November, bringing the 11-month average to 4.3 percent. The latest figure is just above the midpoint of the government’s three- to five-percent goal for the year.

The BSP’s policymaking Monetary Board in October kept the overnight borrowing and overnight lending rates steady as inflation expectations fell within the target ranges for this year until 2016. Earlier, key policy rates were raised by a total of 50 basis points to ensure inflation will remain within the goals.

The Monetary Board will revisit policy settings this Thursday. It is the board’s last rate-setting meeting for the year.

“The policy statement will be interesting, especially in terms of the central bank’s guidance for next year,” DBS said.

“The BSP remains wary of liquidity growth, given that loan growth remains high circa 20 percent despite the string of policy tightening this year. This is the reason why there have been plenty of talks about tightening bank capital rules once again,” the bank said.

The central bank earlier this year hiked banks’ reserve requirement ratios and the Special Deposit Account rate to pull down liquidity growth. DBS said the BSP may further look into adjusting the SDA rates to keep a check on liquidity growth.