BSP rate hike unlikely in 2017, says think tank

Gareth Leather, senior Asia economist at Capital Economics, said the country’s economy is in good shape while inflation remains under control. “Barring any major change in rhetoric from the BSP, we continue to think that the policy rate will remain unchanged at three percent through 2017,” he said. File photo

MANILA, Philippines – Think tank Capital Economics expects the Bangko Sentral ng Pilipinas (BSP) to keep interest rates steady next year on the back of the country’s strong macroeconomic fundamentals.

Gareth Leather, senior Asia economist at Capital Economics, said the country’s economy is in good shape while inflation remains under control.

“Barring any major change in rhetoric from the BSP, we continue to think that the policy rate will remain unchanged at three percent through 2017,” he said.

He pointed out the gross domestic product (GDP) growth of the Philippines accelerated to 7.1 percent in the third quarter from seven percent in the second quarter, bringing the average growth to seven percent in the first nine months of the year.

“Looking ahead, we think the BSP will be in little hurry to either cut or raise interest rates anytime soon,” Leather said.

According to Leather, booming investment and strong consumption growth fueled the country’s GDP to its fastest pace of expansion in over three years.

“Although the recent election of Rodrigo Duterte as president has made the outlook more uncertain, the economy’s strong fundamentals mean growth should remain strong, at least in the short term,” he added.

The economist added inflation is likely to remain comfortably with the central bank’s two to four percent target despite picking up a little further over the coming months.

“Meanwhile, there is little to be worried about on the inflation front,” he said.

Inflation averaged 1.7 percent in the first 11 months of the year after kicking up to 2.5 percent in November.

The BSP’s Monetary Board has retained the inflation forecast at 1.8 percent this year but expects consumer price index to rise 3.3 percent instead of three percent for 2017 and three percent for 2018.

The inflation target for 2019 and 2020 was retained at two to four percent.

Last Thursday, monetary authorities kept policy rates unchanged at 3.5 percent for the overnight lending facility, three percent for the overnight reverse repurchase facility, and 2.5 percent for the overnight deposit facility amid firm domestic economic activity and the benign inflation environment.

US Fed chair Janet Yellen announced a 25 basis-point hike last week, its second in a decade, bringing interest rates to a range of 0.50 to 0.75 percent after the two-day meeting of the Federal Open Market Committee (FOMC).

The Fed also penned three quarter-point rate hikes next year instead of two as of September that could be followed by three more increases in 2018 and 2019.

BSP Governor Amando Tetangco Jr. earlier said the Monetary Board considered the potential impact of the ongoing monetary policy adjustment in the US on global financial conditions.

Unlike Capital Economics, investment banks led by DBS Bank Ltd. and ANZ Bank see a 50-basis point rate hike next year.

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