BSP seen raising policy rates by 50 bps in 2016

THE RESEARCH arm of Metropolitan Bank and Trust Co. expects the Bangko Sentral ng Pilipinas to raise key policy rates in 2016 in light of this month’s hike by the US Federal Reserve.

“The recent policy move by the US Federal Reserve could also prompt the BSP to hike rates next year to keep the current interest rate differential,” Metrobank research analyst Pauline E. Revillas said in a note.

Last week, the US Fed jacked up the benchmark federal funds rate by a quarter point to 0.25-0.50 percent, its first interest rate increase since 2006.

The Monetary Board kept policy rates unchanged during its last meeting for the year.

“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,” BSP Governor Amando M. Tetangco Jr. told reporters after the meeting.

The BSP, however, raised its inflation forecasts for 2016 and 2017 to 2.4 percent (from 2.3 percent) and 3.2 percent (from 2.9 percent), respectively, amid emerging pressure on prices.

Revillas noted that “some upside pressure is seen on domestic inflation amid the likely impact of El Niño on food prices.”

Hence, Revillas said Metrobank Research “expects policy rates to rise by a total of 50 basis points in 2016.”

“Nevertheless, the relatively low interest rate environment will still help support economic activity to shield the domestic economy from negative externalities next year,” she said.