Research firms see no BSP rate hike action in 2017

Analysts from several economic research firms have ruled out the possibility of the Monetary Board raising its policy rates within the year following the latest decision to keep rates steady.

According to London-based Capital Economics, the decision of the Bangko Sentral ng Pilipinas (BSP) to maintain its policy stance was “widely expected.”

“But while the consensus among analysts is that the BSP will hike rates twice this year, we continue to think that rates will be left unchanged in 2017,” Alex Holmes, assistant economist at Capital Economics said in a research note.

Holmes noted that such consensus was partly based on the rapid pace of credit growth, which grew by about 20 percent year-on-year in the first two months of 2017.

However, this factor was not mentioned in the BSP’s statement following the Monetary Board’s meeting on Thursday.

“That said, we doubt that the BSP will respond to rapid credit growth by raising rates. Relative to GDP, the change in private sector credit has been relatively small,” Holmes said. “What’s more, much of the new credit is being directed to productive areas of the economy, such as manufacturing and infrastructure.”

“Where there are trouble spots, such as the real estate market, the BSP is more likely to tackle these risks with targeted macro-prudential policy as it has done in the past,” he added.

According to BSP governor Amando Tetangco Jr., the Monetary Board’s decision on Thursday was based on the assessment that the inflation environment continued to be manageable.

“Considering the more benign inflation outlook, we see a risk of delays to our baseline forecast of 50-basis-point policy rate hikes in the second semester of 2017,” Nomura Group said in a separate note.

This echoes a similar move from Credit Suisse, which said it expected the BSP to keep rates on hold for the rest of the year, changing its previous forecast of a 25-basis-point hike in the second semester.

The Swiss bank cited anticipation of a further slowing of Philippine gross domestic product growth. Credit Suisse cut its GDP growth forecast in 2017 to 6 percent from 6.4 percent, which is the current consensus outlook.