BSP seen likely to ease key policy rates
AS LOW fuel prices keep inflation subdued, monetary authorities may start considering easing policy settings to give the economy as much room as it needs to grow.
US financial giant JP Morgan last week said a hike in interest rates this year was by no means assured. The Bangko Sentral ng Pilipinas (BSP), JP Morgan said, may even go back to easing settings, which will benefit consumers.
“Our economics team expects oil prices to … keep inflation in check. They penciled in [cuts] in the reverse repurchase [RRP] and special deposit account [SDA] rates in the second half,” the bank said in a note to clients over the weekend. “We think this bodes well for the country amid diverging global monetary policies and uncertainties surrounding expectations of a US Fed rate hike.”
The bank’s statements come ahead of the BSP’s first policy stance meeting on Feb. 12. BSP Governor Amando M. Tetangco Jr. said a benign inflation outlook for 2015 would allow the central bank to keep rates steady.
For January, the BSP said inflation would have decelerated to its slowest pace in over five years. The BSP’s main goal is to protect consumers’ purchasing power by keeping consumer prices stable.
“The BSP enjoys great monetary flexibility, thanks to oil,” JP Morgan said in its note.
The bank expects the BSP to cut SDA rates by 25 basis points. A similar cut may be in store for the main benchmark overnight borrowing rate that now stands at 4 percent.
Cutting both benchmarks will drive down interest rates across the country, providing a boost to government spending.
The Philippines is also expected to reap other benefits from cheap oil. JP Morgan said cheap oil would help bring down the country’s import bill. This would help boost the country’s balance of payments (BOP) with additional inflows of as much as $2.5 billion just from the narrowing of the economy’s trade deficit.
BOP inflows—where more money enters, rather than leaves, the country—helps keep the peso strong and allows the BSP to build up its foreign exchange reserves.
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