BSP seen to delay rate hike until 2017

British financial giant Barclays Bank PLC expects the Bangko Sentral ng Pilipinas (BSP) to hold off adjustments in policy rates next year, but tighten monetary policy by the middle of 2017.

“We continue to expect the next policy move to be a hike, but with 2016 growth likely to show no improvement on that year, we see BSP hiking rates only in the second quarter of 2017,” Barclays said in a note to clients late Thursday, after the BSP announced that the Monetary Board kept key policy rates unchanged, its 10th straight on-hold decision.

“This expected hike is also only likely to materialize if growth has recovered sufficiently and inflation is high enough to justify an increase in interest rates,” it said.

Barclays expects the Philippine economy to grow by 5.5 percent both this year and next year.

After the US Fed on Thursday morning in Manila announced its first interest rate hike since 2006, Governor Amando M. Tetangco Jr. said the Monetary Board “has considered the potential impact of the recent monetary policy adjustment in the US on global financial conditions.”

“Keeping monetary policy settings steady at this juncture would allow the BSP some room to continue to assess evolving global economic conditions and calibrate its policy tools as appropriate,” Tetangco said.

According to Barclays, “although there is external uncertainty in the form of the Fed rate hike cycle, we think the Philippines’ strong external position and low level of short-term debt provide the BSP with enough policy space to maintain an accommodative stance even with rates US heading higher.”

“Even with inflation being below its target band, BSP appears comfortable with its policy stance, flagging that growth and inflation risks largely stem from poor weather and the global backdrop,” it added.