BSP seen keeping rates steady

MANILA, Philippines - Standard Chartered Bank expects the Bangko Sentral ng Pilipinas to keep its key policy rates unchanged until next year amid the benign inflation and stable financial conditions.

In a report, StanChart economist Jeff Ng said monetary authorities in the Philippines are likely to keep rates for the overnight borrowing or reverse repurchase facility and overnight lending or repurchase facility as well as special deposit account (SDA) facility steady this year and next year.

 “We would like to reiterate our expectations on BSP policy rates for the rest of the year. We currently expect no changes to the reserve repo rate and the SDA rate for the rest of this and next year,” Ng said.

Ng said inflation is expected to ease further in the third quarter of the year before bottoming out in fourth quarter as food inflation is likely to stay muted.

Inflation eased to a 20-year low of 1.2 percent in June from 1.6 percent in May.

 “However low inflation is not likely to be sustained. We see a modest rebound from the fourth quarter, as base effects turn unfavorable. As a result, there is little need for the BSP to cut policy rates now and hike later on,” Ng said.

StanChart further slashed its price forecast for oil to an average of $64 instead of $76 per barrel this year and $83 instead of $100 for next year.

 “While we still expect oil prices to rebound, we now expect a modest pace of rebound in oil prices,” Ng said.

In its Global Research report last June 9, StanChart revised downwards its inflation forecast to 1.9 percent instead of 2.2 percent this year and to 2.9 percent instead of 3.5 percent next year.

Likewise, the British bank believed the BSP would keep key policy rates steady until the end of 2016 instead of an earlier projection of a 50-basis point hike.

BSP Governor Amando Tetangco Jr. said the other day there is no need to alter monetary policy settings as the Philippines is expected to withstand external shocks arising from the much anticipated interest rate hike by the US Federal Reserve.

“Remember we took tightening measures last year. In 2014, we increased reserve requirements and rates. Those preemptive measures were designed in anticipation of the US Fed lift off. That was one of the things and those haven’t been unwound, and they’re still there. We’re in a good position,” Tetangco said.