BSP likely to maintain rates

MANILA, Philippines–The Bangko Sentral ng Pilipinas is likely to keep its key interest rates steady this Thursday—its last monetary setting for this year—amid slowing growth momentum, an economist from British banking giant HSBC said.

Trinh Nguyen, HSBC economist, said in a research note on Tuesday that the BSP would likely stay neutral until the fourth quarter of 2015, provided that oil prices would not increase sharply, interest rate increases of the US Federal Reserve would be gradual and that there would not be any major decline in agricultural output.

Despite short-term supply shocks from Typhoon Ruby, Nguyen said the Philippine inflation rate—which eased to 3.7 percent year on year in November on slowing food and transport prices—would likely slow further.

On growth prospects for the fourth quarter, Nguyen said after the disappointing third-quarter growth rate of 5.3 percent, weak government spending and investment would likely constrain growth this fourth quarter of 2014 through next year.

Given this slowing growth momentum due to weak fiscal spending and limited output alongside lower oil prices and a high base effect, Nguyen said the BSP would likely hold rates steady on Thursday through most of next year.

“With excess liquidity in the financial system, the BSP will likely keep rates on hold on Dec. 11 and into 2015, hoping lending growth will offset some of the slump in government spending,” she said.

The projection of a neutral monetary stance for the upcoming meeting is in line with consensus forecasts.

But Nguyen said the reasons for the projected neutral stance were obvious regardless of consensus forecasts or the historical precedents of the BSP not changing its stance at the last meeting of the year.

Aside from softening growth and lower oil prices, the economist said BSP Gov. Amando Tetangco Jr. had sent consistent messages to keep interest rates on hold.

Nguyen said lower oil prices and a high base effect should keep headline inflation within the BSP’s 2-4 percent inflation target in the next three months.

“The uncertainties largely lie with Philippine inflation, growth and policy rate outlook for 2015,” she said.

Nguyen said private consumption in the Philippines would be strong in 2015 thanks to steady inflows of remittances, favorable demographic transitions, and low household debt.

However, she said fiscal spending would likely be weak from now into 2015 due to an aversion to spending.

Investment is also likely to be sluggish due to cautious behavior leading up to the elections.