Quantcast
Latest Stories

BSP seen keeping key rates steady

By

Despite the slight uptick in the inflation rate in June, consumer price increases in the Philippines are still seen manageable, boosting expectations that monetary policy will remain steady, economists said.

In a recent commentary, Citigroup economist for the Philippines Jun Trinidad said the higher-than-expected inflation in June offered proof of fading disinflation or a situation where the rate of increase in consumer prices was slowing. He, however, noted that core inflation—which strips off volatile items such as food and energy—was still on the decline.

“This suggests that the price impact of a weak peso, upbeat demand, seasonal price pressures in June, and strong liquidity was limited to non-core CPI (consumer price index), with limited price contagion effects thus far,” Trinidad said.

“Inflation upticks would not unhinge the overnight rate at 3.5 percent,” Trinidad said, adding that market sentiment would, however, remain biased in favor of short-duration bonds for now.

In a separate research note, HSBC economist Trinh Nguyen said the rise in the country’s June inflation was unlikely to prompt the central bank to change its monetary stance, adding that headline inflation was expected to remain at the bottom of the central bank’s 3-5 percent target range for the remainder of the year.

“Monetary conditions are loose enough. The limitation of the SDA (special deposit account) account to only pooled funds could cause half of the funds in the facility to be pushed out into other investment alternatives, easing liquidity conditions,” Nguyen said.

As such, she said the Bangko Sentral ng Pilipinas would likely keep the overnight borrowing rate of 3.5 percent and the SDA rate of 2 percent at the next meeting, she said.

The policymaking Monetary Board is scheduled to hold its next monetary setting on July 25, the fifth for the year.

Trinidad said the country might still see easing inflation in the months ahead but it might settle within the 2.9-3.1 percent range toward the end of the year. He said this would lead to inflation stabilizing at the low 3 percent range in the first half of 2014.

“Price catalysts from weak Philippine peso and the upbeat demand backdrop coincide, combined with rising investment contribution to GDP (gross domestic product) from higher infra spending and private investments, will likely alleviate supply constraints and bode well for long-term inflation,” Trinidad said.

“The exclusion of the high excise tax effects didn’t alter the inflation pattern derived from the usual CPI measures. We continue to get the impression of benign inflation despite the price upticks recently printed,” he said.

Nguyen said the SDA rate would likely remain at 2 percent in the foreseeable future, as the limiting of the facility to only Unit Investment Trust Funds (UTIF) had gradually reduced the amount in the SDA account.

“By the end of July, 30 percent of the funds in the facility must be out.  That means that, although the central bank refrained from further cutting the SDA rate at the last policy meeting, it had essentially eased liquidity conditions by pushing out about half of the current amount parked in the facility. The liquidation is expected to accelerate in the third quarter as the November deadline for all the banned accounts nears,” she said.

Nguyen said that with global commodity prices contained and external demand still weak, inflation pressures remained tame. While the peso has weakened recently, she said the pass-through effect of a weak currency was expected to be marginal.

This trend is expected to continue provided that the storm season would not affect food supply, Nguyen said.

The upside risks to inflation are the potential asset bubbles stemming from funds leaving the SDA account and transferring to other investment alternatives such as equities and real estate, she added.

She noted that potential weather-related supply shocks could also cause a spike in food inflation. “But these risks remain small and are unlikely to worry the BSP at this juncture,” she said.

“We, therefore, expect the central bank to maintain an accommodative stance, providing a boost to local demand by keeping rates low. We do not expect any move in the remainder of the year, as recent rate cuts and policy changes around the SDA facility are still being implemented,” she said.


Follow Us


Follow us on Facebook Follow on Twitter Follow on Twitter


Recent Stories:

Complete stories on our Digital Edition newsstand for tablets, netbooks and mobile phones; 14-issue free trial. About to step out? Get breaking alerts on your mobile.phone. Text ON INQ BREAKING to 4467, for Globe, Smart and Sun subscribers in the Philippines.

Tags: Bangko Sentral ng Pilipinas , Business , consumer price , News



Copyright © 2014, .
To subscribe to the Philippine Daily Inquirer newspaper in the Philippines, call +63 2 896-6000 for Metro Manila and Metro Cebu or email your subscription request here.
Factual errors? Contact the Philippine Daily Inquirer's day desk. Believe this article violates journalistic ethics? Contact the Inquirer's Reader's Advocate. Or write The Readers' Advocate:
c/o Philippine Daily Inquirer Chino Roces Avenue corner Yague and Mascardo Streets, Makati City, Metro Manila, Philippines Or fax nos. +63 2 8974793 to 94
Advertisement
Advertisement

News

  • Bernice Lee arrested by NBI team
  • Group: Bataan cop killed to stop him from exposing colleagues linked to drug ring
  • Chemical Engineer licensure examination
  • Troubled history fuels Japan-China tension
  • Palace: Our concern is to ensure MRT runs smoothly
  • Sports

  • NLEX fights off Derulo Accelero to remain unbeaten
  • Mayweather diehard Bieber eats pride, poses with Pacquiao for photo op
  • Power Pinays rip Singapore to enter quarters in Asian volley tilt
  • PBA D-League: Waves edge skidding Superchargers
  • Ilad’s last-second basket lifts Gems over Bakers
  • Lifestyle

  • Miss America: Don’t suspend teen over prom invite
  • Transitions and resurrection in the performing arts
  • ‘Archaeology tour’ of Cebu’s heritage of faith
  • Historic Fort Bonifacio tunnel converted into a septic tank
  • ‘Imports’ from London, and play of the year
  • Entertainment

  • Arrest warrants out vs. Deniece Cornejo, Cedric Lee, et al over serious illegal detention
  • Lindsay Lohan says she had a miscarriage
  • Discovery network cancels Everest jump
  • ‘Captain America’ stays strong atop US box office
  • Easter musings
  • Business

  • Century Pacific Food sets IPO price at P13.75 per share
  • Oil prices down in quiet Asian trade
  • Asian shares mixed in holiday-thinned trade
  • BDO seen keen on bidding for Cocobank
  • Bataan freeport investment pledges up 1,302%
  • Technology

  • PH has slowest internet in Southeast Asia
  • Nintendo’s trailblazing Game Boy marks 25th anniversary
  • Nasa’s moon-orbiting robot crashes down
  • Netizens pay respects to Gabriel Garcia Marquez
  • Nokia recalls 30,000 chargers for Lumia 2520 tablet
  • Opinion

  • Gigi’s home
  • Palace stonewalls on MRT inquiry
  • Couple of things too
  • There is plenty of water behind Wawa Dam
  • Triduum thoughts of a young boy
  • Global Nation

  • Balikatan could spoil peace talks, says militant group
  • DFA officers hold workshop on aiding human traffic victims
  • Canada in communication with PH on toxic wastes
  • Filipinos in Middle East urged not to panic amid MERS-CoV scare
  • Obama on mission to quiet Asia skeptics
  • Marketplace