The central bank is expected to keep key interest rates unchanged in Thursday’s policy stance meeting, with monetary officials seen playing it safe by staying accommodative amid global uncertainties that threaten economic growth.
Financial giant HSBC, which thinks Philippine economic growth likely reached its peak growth rate for the year in the first quarter, said the Bangko Sentral ng Pilipinas (BSP) would likely keep interest rates on hold.
The conservative stance in Thursday’s meeting comes after several moves in the first half of the year that saw the central bank cut Special Deposit Account (SDA) rates by 150 basis points as well as the decision to ban the access of non-pooled trust accounts to the facility.
“Any significant movement in the future is contingent on the central bank’s ability to see through the fog, which is unlikely to take place at the next meeting or even the Sept. 12 meeting,” HSBC economist Trinh Nguyen said in a report. “Coupled with uncertainty in the external environment, growth in the Philippines is expected to decelerate in the second half. External headwinds are strong.”
HSBC said the Philippine economic growth would likely decelerate in the second quarter to 5.6 percent. Third-quarter growth is also expected to settle at 5.6 percent before improving slightly to 6.7 percent in the last three months of 2013.
As a result, growth for the whole year is expected to settle at 6.4 percent, slowing from the 7.8-percent expansion recorded in the first quarter.
HSBC said the BSP also did not seem concerned about the possibility of asset bubbles forming, particularly in the property sector. BSP Governor Amando M. Tetangco Jr. earlier said the drop in asset prices in June—a result of signals to an end of easy money policies in the United States—helped reduce the risk of bubbles forming in various asset classes.
“The central bank also stated that it is comfortable with the peso-dollar rate at around 41 to 43.5: $1 level, indicating that the current levels of the currency are not a major concern for policy makers,” HSBC said.
Coupled with its ease with the peso, the BSP is likely pleased with the results of its reducing the SDA rate and limiting of non-pooled trust funds to the facility,” the bank added.
HSBC said the gradual decline of the amount parked in the SDA facility since February suggested that funds were beginning to flow out of the facility and the rate of outflow was expected to accelerate in the coming months.
“With past policy still being filtered through, the BSP is unlikely to adjust the SDA rate further until the effects are well-monitored,” HSBC said.