The Bangko Sentral ng Pilipinas is seen ending its monetary tightening cycle, as the country navigates through a period of anemic economic growth and heightened risks of another US-led global slowdown.
When the policy-making Monetary Board of the Bangko Sentral ng Pilipinas meets this Thursday, officials will likely be in a “more accommodative mood,” HSBC economist Trinh Nguyen said on Monday.
Ms. Nguyen, in a research paper titled “Philippines’ Central Bank Watch,” said the BSP would likely keep its monetary settings unchanged from thereon until the second quarter of next year.
HSBC also downgraded its economic growth forecast for the Philippines this year to 4.3 percent from 5.2 percent, citing stiffer global headwinds that implied the easing of inflationary pressures.
In a separate research dated August 30, Citigroup economist for the Philippines Jun Trinidad said the BSP was likely done with rate tightening but no ‘rate cuts’ would likely come anytime soon as the financial system was still teeming with excess cash.
“In our meeting with a senior monetary official, we obtained an impression of the BSP shifting its policy bias from rate tightening to addressing excess liquidity risk from strong portfolio investment flows,” Trinidad said.
After the September 8 meeting, the BSP will have two more policy rate setting meetings scheduled for October 20 and December 1.
It was reported last week that the Philippine gross domestic product grew by only 3.4 percent in the second quarter from a year ago, way below the market consensus of 4.9 percent.
HSBC’s Nguyen said exports—dragged down by the slowing world demand and supply disruptions from Japan—were the main culprit. Investments, meanwhile, fell partly because the government cut back on outlays, the economist said.
“With the global economy slipping again in recent months, a quick rebound in Philippine growth does not appear likely for now,” Nguyen said, explaining the downward revision in HSBC’s growth outlook for the Philippines this year.
She said one concern was that inflation in the country was still a little too high for comfort, but added that it looked set to come off in the coming months, with base effects and lower global commodity prices helping to push the headline inflation reading back to where it belongs.
“What does all this mean for monetary policy? Well, central bank officials can afford to relax for the time being. We had initially penciled in a few more rate hikes by yearend. That looks a little bit of a stretch now. Instead, we are changing our call to a hold until the second quarter of 2012,” Nguyen said.