BSP seen keeping rates steady

The Bangko Sentral ng Pilipinas is likely to keep its key interest rates unchanged at Thursday’s policy rate setting through the first half of 2014 to cushion against slowing growth, an economist from British bank HSBC said.

Even as the country’s inflation rate had accelerated to 3.3 percent year-on-year in November from 2.9 percent in October due to short-term supply shocks, HSBC economist Trinh Nguyen said in a research note issued yesterday that benign oil prices would likely help keep inflation within the BSP’s 3-5 percent target in the next six months.

Since the last BSP policy rate meeting, Nguyen noted that the country had been struck by its worst storm in decades, with Typhoon Yolanda destroying not just agriculture output but also much of the infrastructure in the Eastern Visayas region.

“The loss of employment and infrastructure will drag down growth in fourth quarter 2013 and first half 2014. Higher import demand arising from the loss of agricultural output and rebuilding efforts will add to the blow,” Nguyen said.

“But with inflation subdued thus far, the BSP has room to keep rates on hold until second half of 2014 to support growth conditions despite rising inflationary pressures,” she said.

Although the typhoon would likely slow growth momentum, the HSBC economist said remittances, flush liquidity conditions and increased fiscal spending would keep domestic demand robust.

“Already, anecdotal evidence suggests that remittances are rising. The inflows will help offset the loss of income and help people rebuild damaged homes in the affected areas of central Philippines,” she said.

Nguyen said government spending would also likely rise this fourth quarter of 2013 to counter the loss of output, noting that the year-to-date fiscal deficit had been much smaller than expected at 1.2 percent of GDP.