Bangko Sentral seen holding off rate hike

BSP Governor Amando M. Tetangco Jr.: ‘Very hawkish’. INQUIRER FILE PHOTO

MANILA, Philippines—Monetary officials are expected to more clearly telegraph their next policy move this week to guide market players on how to best place their bets as the US Federal Reserve gradually ends the era of cheap money.

The policy-making Monetary Board of the Bangko Sentral ng Pilipinas (BSP) convenes this week in what could be its most closely watched meeting since bringing rates to record lows in late 2012.

This follows hawkish signals earlier this month from BSP Governor Amando M. Tetangco Jr., who said “early adjustments” in monetary policy settings would be ideal.

“The BSP governor has been sounding very hawkish,” Singapore’s DBS said in a note to clients on Monday.

“It seems like the central bank is ready to start taking gradual steps in tightening its monetary policy,” Southeast Asia’s leading bank added.

Last week, the US Fed announced the third consecutive cut in its monthly bond-buying program, which has helped drive down interest rates and pushed more investors to bring their cash to emerging markets like the Philippines since 2009. Starting April, the Fed will buy $55 billion in mortgage-backed securities and US treasuries every month, down from the original pace of $85 billion.

Tetangco, reacting to the Fed’s latest decision, signaled to markets that policy adjustments in the country would come sooner rather than later. “Even as domestic inflation over the policy horizon remains within target, measured adjustments may be warranted,” he told reporters last week.

At its last policy meeting, the BSP said inflation would average 4.2 percent this year or above the midpoint of the official 3- to 5-percent target range. This forecast is set for an update this Thursday.

DBS said the BSP would hold off a rate increase this week and would instead choose to more clearly signal its next move.

“That GDP growth momentum remains strong, still on target to meet the 6- to 7-percent target, means that this policy adjustment will be done from a position of strength,” DBS said.

The BSP’s benchmark overnight borrowing and lending rates stand at record lows of 3.5 and 5.5 percent, respectively. These rates aim to manage banks’ willingness to lend to the public as well as influence the amount of money circulating in the economy.

“More clarity will be provided this week. The central bank may stay put for now but some tinkering in the next policy meeting is highly likely,” the bank said.

Any adjustment in the policy meetings after this week would likely come in the form of higher special deposit account (SDA) rates or tweaks to banks’ regulatory reserve requirements, DBS added.