BSP seen holding off on any rate action in 2015

The central bank will likely keep policy rates on hold for the entire year, with inflationary pressures staying benign due to stable fuel prices.

First Metro Investments Corp. (FMIC) in a new report said prices would remain stable throughout 2015. Inflation will reach its lowest point by July, the investment bank said this week.

“With inflation at the low-end of its target and money growth at a single-digit pace until the second quarter, the Bangko Sentral ng Pilipinas (BSP) will likely keep rates on hold not only next quarter, but all the way to the end of the year,” FMIC said.

The BSP’s overnight borrowing and lending rates currently stand at 4 and 6 percent, respectively.

Both rates are just half a percentage point each above their record lows.

Protecting consumers’ purchasing power by keeping prices stable is the BSP’s main goal.

For 2015, the BSP expects inflation to average at 2.3 percent, which is well within the target range of 2 to 4 percent.

Headline inflation rate will likely trek the downward path, FMIC said, with stable food prices and soft fuel prices on the horizon.

“It may even go below 2 percent by July if the current trends continue,” it added.

Official data showed inflation in March stood at 2.4 percent, matching January’s five-year low.

In February, inflation was slightly faster at 2.5 percent.

Price upticks in petroleum and utility rates offset the price deceleration recorded in most of the indices, resulting in the slight increase in February. Lower power plant availability resulted in higher generation and transmission costs, which mostly accounted for the recent power rate increase in Metro Manila.

Meanwhile, oil prices increased resulting from expected cutbacks in production and exploration of international oil companies as soft oil prices have resulted in steep oil rig count in the United States.

“Nonetheless, oil prices remain comparably lower than the previous years,” FMIC said.

Year-on-year (y-o-y) West Texas Intermediate (WTI) prices plunged by 49.5 percent in February while Brent crude oil prices tumbled by 46.8 percent.

The outlook for oil prices remains modest given the continuing oil glut.