BSP expected to keep rates at current lows
The Bangko Sentral ng Pilipinas (BSP) will likely keep interest rates at their current lows for at least until the middle of next year given the stabilizing consumer prices.
Analysts said that if at all monetary authorities would hike interest rates, it would only be in response to moves by the US Federal Reserve, not concerns over domestic inflation.
“It will be more to adjust to external circumstances, not due to internal inflation,” BPI lead economist Emilio Neri Jr. said in a recent interview.
Neri said BPI was expecting the next BSP rate hike to come late in the second quarter of 2015 or early in the third quarter.
The BSP’s overnight borrowing and lending rates currently stand at 4 and 6 percent, respectively. These benchmarks were increased by half a percentage point each from record lows in 2014 as the BSP sought to address rising prices.
Hiking interest rates can influence banks to increase their own lending rates, which could dampen consumer and business demand. This is in line with the BSP’s task of protecting the consumers’ purchasing power by keeping prices stable.
Inflation peaked in 2014 at 4.9 percent in July and August. For the whole year, the BSP expects an average inflation of 4.2 percent, which is within the target range of 3 to 5 percent.
Inflation in recent months has gone down, allowing the BSP to pause in adjusting rates. In December, alone, the BSP said inflation likely averaged between 2.4 and 3.2 percent.
Maybank ATR KimEng analyst Luz Lorenzo likewise said the next interest rate hike would be in response to an expected hike in the US Federal Reserve’s deposit rates—a first since the start of the global financial crisis of 2008. Lorenzo said this might take place in the second half of 2014.
BDO chief market strategist Jonathan Ravelas said if fuel prices would stay low or continue to go down well into 2015, the BSP might stay its own hand.
