ING Bank sees rate hike next year

MANILA, Philippines – Dutch financial giant ING sees the Bangko Sentral ng Pilipinas (BSP) hiking rates next year amid the continued volatility in the global financial market.

Joey Cuyegkeng, chief economist at ING Bank Manila, said the BSP could raise interest rates by 50 basis points next year due to the continued weakening of the peso against the dollar.

Cuyegkeng said increased currency volatility as seen by the underperformance of the peso could elicit a hawkish response from the BSP.

Last Nov. 12, the BSP kept policy rates unchanged for the 9th policy-setting meeting since October amid the country’s economic growth momentum and benign inflation environment.

BSP Governor Amando Tetangco Jr. said earlier the challenging external environment and uneven growth prospects in advanced and key emerging economies supported a steady policy setting.

“Given these conditions, the Monetary Board believes the benign inflation environment and the economy’s underlying growth momentum provide adequate room to maintain monetary policy settings,” Tetangco said.

“The Monetary Board also observed that domestic demand conditions have stayed firm, as business and consumer sentiment continue to be buoyant and domestic liquidity remains adequate,” he added.

Inflation remained at a record low of 0.4 percent in October due to stable food prices and lower utility rates, bringing average inflation in the first 10 months to 1.4 percent, way below the inflation target of between two and four percent set by the BSP for this year and next year.

The BSP has further lowered its inflation forecast to 1.4 percent instead of the previous projection of 1.6 percent for this year, 2.3 percent instead of 2.6 percent next year and to 2.9 percent instead of three percent for 2017.

On the other hand, the country’s gross domestic product (GDP) growth slowed down to 5.3 percent in the first half of the year from 6.4 percent in the same period last year due to weak global demand and lack of government spending.

Philippine economic managers have penned a GDP growth of between seven percent and eight percent this year from 6.1 percent last year.

ING Bank chief economist in Asia Tim Condon said economic growth is more of the concern than inflation.

“Growth is more of a concern,” Condon said.

He cited the steep 24.7 percent plunge in the country’s merchandise exports in September bringing the decline in export earnings to 6.9 percent in the first nine months of the year.

It would be recalled the BSP raised interest rates by 50 basis points bringing the overnight borrowing rate to four percent and the overnight lending rate to six percent as well as the reserve requirements for banks last year to siphon off excess liquidity in the financial system. It also hiked the reserve requirement ratio of banks to 20 percent.

Last year, the BSP hiked policy rates by 25 basis points in July and by another 25 basis points in September. It also raised the reserve requirements for banks by one percentage point in March and by another one percentage point in May.