BSP likely to keep rates until next year

MANILA, Philippines - ANZ Bank sees the Bangko Sentral ng Pilipinas (BSP) keeping interest rates steady until the first half of next year amid the country’s sustained economic growth.

“With credit growth still robust at 14.1 percent year-on-year in September, we see little rationale for the central bank to further ease monetary conditions when the main downside risks are from weak fiscal spending and soft external demand,” the investment bank said.

Last Nov. 12, the BSP kept interest rates steady for the ninth straight policy-setting meeting since October last year. The overnight borrowing rate was maintained at four percent, the overnight lending rate at six percent, and the special deposit account (SDA) rate at 2.5 percent.

“On the monetary front, we stand by our expectation that the central bank will maintain its policy settings through the first half of 2016,” ANZ Bank said.

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.  The central bank likewise hiked the reserve requirement ratio of banks to 20 percent to siphon off excess liquidity in the financial system. ANZ Bank believes the BSP’s Monetary Board would adopt liquidity management measures ahead of the implementation of the interest rate corridor system in the second quarter of next year.

“The planned transition to an interest rate corridor will usher in operational tweaks in liquidity management,” the bank said.

The investment bank retained its gross domestic product (GDP) growth forecast of 5.7 percent for this year and six percent for next year as it expects the Philippines to remain one of Asia’s strong performers.