BSP seen to keep policy rates unchanged

THE CENTRAL bank will keep its policy rates on hold this Thursday, with monetary authorities expected to take a wait-and-see stance ahead of a possible rate increase by the US Federal Reserve.

Local and foreign banks also said that the Bangko Sentral ng Pilipinas (BSP) was anticipating higher inflation in the coming months and rate adjustments would be done with care.

“The central bank will likely point to risks stemming from El Niño,” British bank HSBC said in a recent note to clients.

All eight banks polled by the Inquirer this month said policy rates set by the BSP would be kept steady at the Monetary Board’s meeting this Thursday. Benchmark overnight borrowing and lending rates have been steady at 4 and 6 percent, respectively, since October 2014. Yields for special deposit accounts (SDA), which the BSP uses to mop up excess liquidity from the economy, stand at 2.5 percent across all maturities.

Other banks seeing steady rates were Ambank (Arab Malaysian Bank), BPI, Barclays, DBS, ING, JP Morgan and Standard Chartered.

Projections for steady rates followed BSP Governor Amando M. Tetangco Jr.’s pronouncement last week that current policy settings were appropriate for the moment.

In October, consumer prices rose by an average 0.4 percent, matching September’s record low. Despite record-low inflation, which suggested room for monetary easing, Tetangco said the rate of price increases might have bottomed out.

Drier weather as a result of El Niño is seen as the biggest risk to inflation as this is expected to result in lower farm harvests.

However, banks said there were several other data for the BSP to consider. “The next important data to watch are the gross domestic product (GDP) numbers at the end of the month,” DBS economist Gundy Cahyadi said in an e-mail.

“Thus far, GDP growth momentum looks fairly robust but any disappointment in the [third-quarter] GDP data will definitely provide more reasons for further policy loosening from the BSP,” he said.

The BSP’s planned shift to an interest rate corridor may also lead to adjustments in the policy stance.

Comments from the BSP regarding the narrowing of its current interest rate corridor might suggest a possible easing by the BSP but on the less potent overnight borrowing and lending rates “sometime before the full implementation of the interest rate corridor next year,” according to BPI economist Emilio Neri Jr.

“A cut, however, to the special deposit account (SDA) rate at a time that core inflation outpaces headline inflation would not be in line with its price stability mandate,” Neri said.