BSP likely to keep key rates steady | Inquirer Business

BSP likely to keep key rates steady

/ 01:47 AM October 25, 2014

The Bangko Sentral ng Pilipinas is likely to maintain its key interest rates steady for the rest of the year, but it may resume its monetary tightening measures by the first half of 2015 to keep inflation from breaching the target level, an economist from British banking giant HSBC said.

In a research note issued a day after the BSP decided to keep its monetary settings unchanged, HSBC economist Trinh Nguyen said that, by the first semester of next year, the monetary institution could hike both its key policy and special deposit account (SDA) rates by a total of 50 basis basis points.

Also, the regulator may likely raise the reserve requirement on banks by 2 percentage points, she added.
But the economist expressed her concern about the rise in consumer prices in 2015.

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“Starting next year, the inflation target range will narrow to 2-4 percent. As the best case scenario, headline inflation will ease to just below 4 percent by end-2014.

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January and February tend to be months with low price pressures, assuming no major supply shock. However, we believe headline inflation will spike above the BSP’s target in March 2015, forcing the central bank to raise rates further,” Nguyen explained.

In December, Nguyen said, inflation may ease to 3.8 percent year-on-year because of the slowdown in the rise of food and oil prices.

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“But with a narrower target of 2-4 percent in 2015, the BSP will have to be vigilant [by the end of the] first quarter of 2015,” she said.

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Last Thursday, the BSP’s policy-making Monetary Board kept the overnight borrowing rate at 4 percent and overnight lending rate at 6 percent. The BSP also maintained the rate on SDAs at 2.5 percent.

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SDA is a special monetary tool created by the BSP to mop up liquidity from the economic system.

The regulator also adjusted its inflation forecast for 2014 to 4.4 percent, from 4.5 percent. For 2015, inflation is projected to reach 3.7 percent, from 3.8 percent. For 2016, the inflation forecast was tempered to 2.8 percent from 3 percent.

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“The BSP’s decision to maintain policy rates reflects the confidence that inflation likely peaked in August at 4.9 percent year-on-year. After months of shortages due to a weaker-than-expected rice harvest and port congestion issues in Manila, food supply has increased. Therefore, prices of basic goods such as rice, sugar, cooking oil and meat stabilized,” she added. Doris C. Dumlao

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TAGS: Bangko Sentral ng Pilipinas, BSP, Business, HSBC, Inflation, Interest Rates, Regulator

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