Bangko Sentral seen keeping rates steady

THE BANGKO Sentral ng Pilipinas (BSP) is expected to keep policy rates on hold until late next year amid steadier-than-expected consumer prices and strong consumer demand.

Singapore’s DBS, Southeast Asia’s biggest bank, said the BSP would delay a rate increase for as long as it could due to low inflation. Keeping rates near record lows could also lead to a weaker currency, which would help lift inflation closer to target levels, the bank said.

“Expect steady policy rates within the next year,” DBS economist Gundy Cahyadi said in a new report.

Last month, consumer prices rose an average 0.6 percent, resetting the record low that was previously set in July at 0.8 percent. This was due to the abundance of cheap fuel and the relatively stable supply in food prices.

The BSP’s main goal is to protect the peso’s purchasing power by keeping prices stable. This is done through adjustments in interest rates and the management of the amount of money circulating in the economy.

BSP Governor Amando M. Tetangco Jr. earlier said that monetary authorities were wary of a potential reversal in oil prices and the expected effects of dryer weather caused by the El Niño phenomenon.

Less-than-usual rainfall in the country can affect crop production, which, in turn, could lead to more expensive food prices. The capability of hydroelectric plants to produce power will also be under pressure.

“While we had previously expected a rate hike in early 2016, that seems unlikely now. Inflation is set to average at 1.6 percent, missing the official 2- to 4-percent target,” Cahyadi said.

The low inflation environment in the country persists despite strong economic growth. DBS sees the Philippine economy growing by 5.7 percent this year, slower than last year’s 6.1 percent. Despite a slower growth, DBS noted that private consumption in the Philippines grew by 6 percent in the first half of the year, the fastest in three years.

Cahyadi said the economy could still match last year’s pace of expansion if government spending would pick up in the remaining months of 2015.