Bangko Sentral seen keeping rates steady

Even after a monetary tightening cycle that jacked up its key interest rates by a total of 175 basis points in the last seven months, the Bangko Sentral ng Pilipinas (BSP) is widely expected to keep its key interest rates unchanged at today’s policy meeting.

The inflation-targeting BSP will likely pause at today’s meeting especially with November inflation rate reflecting a significant deceleration in price pressures, Dutch banking giant ING said. This view is in line with consensus forecasts.

In November, the country’s headline inflation saw a notable year-on-year drop to 6 percent from 6.7 percent, alongside a month-on-month deceleration of 0.40 percent, mainly attributed to the slowdown in food inflation, which slipped to 8 percent from 9.4 percent in the previous month as supply side bottlenecks were addressed. The reversal of the upswing in global oil prices also tempered price pressures for household utilities and transport.

In a research note issued on Wednesday, ING said the BSP would thus enact a “hawkish pause” at this meeting.

“We expect it to keep rates unchanged while simultaneously retaining its hawkish bias by pledging to act against signs of price pressure if these become apparent. Pausing on [Dec.13] will give the general economy some breathing room. It would also keep the market on its toes by displaying the BSP’s readiness to act to safeguard the inflation target,” ING said.

After seven consecutive weeks of declines in retail pump prices, ING noted that the government had rolled back its P1-increase in minimum jeepney (commuter bus) fares, mitigating second round effects.

With the BSP lowering substantially its inflation forecasts to 3.5 percent for 2019 and 3.3 percent for 2020, ING said inflation expectations appeared to be “well-anchored” with the market consensus expecting the BSP to keep policy rates unchanged at today’s meeting.

On previous food supply constraints, ING said roughly 703,000 metric tons of rice had been secured via National Food Authority-led bidding while private traders have lined up to import up to 572,278 MT for next year.

It added that the all-important rice tariff bill was set to the enacted while oil prices were expected to be constrained in the short term on concerns of a global supply glut.

Inflation expectations remain “well-anchored,” with Bloomberg inflation forecasts reported in December showing headline inflation settling at the 3.8 percent level by 2019, ING said.

Constrained growth in domestic liquidity could also limit demand side inflationary pressures in the coming months, the research said.

“Lastly, despite expectations of strong economic growth, third quarter GDP (gross domestic product) numbers point to a stark weakening in growth momentum with household final consumption growth slowing to 5.2 percent year-on-year. A BSP pause would afford the Philippine economy some breathing room to maintain its current growth trajectory, all the more so given expectations for slowing global economic growth in 2019,” ING said.