MANILA, Philippines - Easing inflation and domestic liquidity growth should allow the Bangko Sentral ng Pilipinas to keep rates steady, at least during the first quarter of 2015, according to the latest Market Call report.
“The downtrend in the domestic liquidity and the anticipation of a sharp decline in inflation reinforce our view that the BSP will take a pause in its monetary tightening cycle at least until after Q1 2015,” First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said in the report.
M3 – the broadest measure of liquidity – grew 15.4 percent to P7.208 trillion in October, latest central bank data showed. The growth, however, is a further deceleration from the 16.2-percent rate in September and 18.3 percent in August.
“Domestic liquidity (M3) continued to slow down as the previous monetary adjustments persist to work their way through the financial system,” the FMIC and the UA&P noted.
Earlier this year, the BSP raised banks’ reserve requirement ratios by 200 basis points and the special deposit account (SDA) rate by 25 bps to pull down the relatively high liquidity growth.
M3 growth hit 30 percent in July last year and remained above that level for 10 months after the central bank in early 2013 reduced the SDA rate by 150 bps and restricted deposits of investment management accounts or the singular fund accounts offered usually to retail investors.
Discouraging investments in the SDA was done so funds would be put instead to activities that will benefit the domestic economy.
Inflation, meanwhile, slid to 3.7 percent in November from 4.3 percent in October and 4.4 percent in September. The BSP has forecast the rate to settle between 2.4 and 3.2 percent in December, further easing from the previous month’s rate.
Monetary authorities, during their last rate-setting meeting for the year held Dec. 11, maintained the overnight borrowing and overnight lending rates at four percent and six percent, respectively.
Key policy rates were hiked by a total of 50 bps during the July and September meetings to ensure inflation will remain within the target ranges for this year until 2016.
The BSP’s Monetary Board will revisit policy settings on Feb. 12 next year.