The Bangko Sentral ng Pilipinas is likely to maintain key interest rates at current levels when the policy-making Monetary Board holds its regular meeting on Thursday.
The BSP is seen taking that stance as inflation started to trend higher while risks of external volatility remain, American banking giant Citigroup said.
In a commentary dated Oct. 18, Citigroup economist for the Philippines Jun Trinidad said the Philippine economy might have sustained growth exceeding 7 percent in the third quarter but monetary authorities might still want to keep rates at record-low levels given global uncertainties.
Trinidad said his team was expecting the BSP’s policy-making Monetary Board to keep the overnight policy rate at 3.5 percent.
While the headline inflation rising to 2.7 percent year-on-year in September from 2.1 percent in Aug, the Citigroup research noted that the “downside risk posed by the US fiscal crisis, particularly the requirement to expand the US fiscal debt limit, would dominate risk assessment this quarter and contribute to extending rate accommodation.”
Citigroup also noted the surprising export performance in August, although imports were not as buoyant.
“Coupled with upbeat remittances and strong primary fiscal spending in July and August, we sense an increased likelihood of a strong third quarter GDP growth exceeding 7 percent year-on-year,” the research noted.
While the third quarter economic indicators strongly suggested less urgency for another rate stimulus, Citi believes that global uncertainties driven by the United States’ narrowing fiscal spending flexibility will compel local policymakers to ensure that monetary accommodation stays.
The research noted an assurance from a monetary official that there was sufficient monetary tools and policy flexibility to address financial tightening pressures and shocks that might be brought about by adverse external developments.
On external trade, Citigroup does not expect Philippine imports to match export gains in August but said that most of the key import sub-sectors might have posted growth except consumer goods.
On a seasonally adjusted basis, the research noted that imports had fallen by 1.2 percent month-on-month, following a 6.9 percent month-on-month jump in July.
“Base effect probably enabled imports of capital goods to rise by 6.7 percent year-on-year in August unless we see another unexpected aircraft purchase,” the research said.
Following the preceding month’s buoyant year-on-year rise of 33.1 percent, the Citi research indicated that imports of electronics probably grew by 6.1 percent year-on-year in August.