Bangko Sentral expected to keep key rates unchanged
The Monetary Board is expected to keep policy rates unchanged when it holds its policy rate setting meet Thursday as the rise in consumer prices remains manageable, according to Barclays Bank and DBS Group.
The financial service providers said in separate reports that monetary authorities were not expected to raise the overnight borrowing and lending rates until the fourth quarter. If ever there would be any adjustment in the fourth quarter, they said the increase would only be 25 basis points.
In its latest weekly report on the global economy, Barclays said that inflation in the Philippines reached a five-month high of 3.4 percent year on year in February only because of the seasonal effects of the Lunar New Year, which was prevalent in the region particularly in China and Taiwan.
“In the case of the Philippines, inflationary pressures are rising given the economy’s robust growth,” Barclays said.
The bank expects inflation to average 4.1 percent this year, which is higher than the Bangko Sentral ng Pilipinas’ target range of 3 to 5 percent.
“Our base case is for the BSP to hike the policy rate to 3.75 percent,” Barclays said. “However, recent rhetoric from the bank indicates that further cuts in the SDA (special deposit accounts) rate cannot be ruled out in the policy meeting (Thursday).”
Barclays said lowering the SDA rates would reduce the BSP’s costs and provide it with greater freedom to manage volatility in foreign exchange rates.
Also, DBS said that with Thursday’s policy meeting likely to be “a nonevent,” yields on government bonds should stay at record lows.
The Singapore-based bank noted that the interest rate on the benchmark 10-year treasury bond had fallen to fresh lows of about 4 percent during this quarter.
“As such, it has now fallen below the five-year average of the annual inflation rate, which stood at 4.7 percent in February,” the bank said.
DBS also said the downward pressures on the dollar-peso exchange rate and the Philippine interbank offered rates indicated a continuing growth of primary liquidity in the banking system.
“From a liquidity point of view, (this scenario) almost certainly can (continue), as both the peso and US dollar liquidity in the banking system should continue to expand through surpluses on both the current account and the capital account,” DBS said.