The Bangko Sentral ng Pilipinas need not change its monetary policy since the inflation figure in May was reported to be lower than expected, according to DBS Bank.
The Singapore-based bank said in a research note that while the BSP is widely expected to hike key policy rates on Thursday, this is “by no means a done deal.”
The fact that annual headline inflation “stayed at 4.5 percent in May allows the BSP to slow its tightening cycle,” the bank said.
The hike in consumer prices in April was initially pegged at 4.5 percent, but the National Statistics Office revised this to 4.3 percent.
“With inflation still below the upper limit of the BSP’s target range, the central bank might not hike rates this week, especially if inflation forecasts for this year and 2012 are not revised sharply higher on Thursday,” DBS said.
Last week, BSP Governor Amando M. Tetangco Jr. said the Monetary Board had adopted revised inflation forecasts for this year and the next. The new forecasts are expected to influence decision-makers over whether to raise or retain key policy rates.
With the country’s recovery from the global financial crisis, the Monetary Board has jacked up key rates twice by 25 basis points, bringing the overnight borrowing rate to 4.5 percent and the overnight lending rate to 6.5 percent.
But if the BSP were to decide retain key rates this week, DBS said excess liquidity would more likely keep government bond yields low well into the third quarter.
“In the longer term, however, if inflation continues to rise, the central bank will have to continue with policy tightening, and bond yields will rise,” DBS added.
Last week, Standard Chartered Bank and UBS Securities both said they expected the BSP to raise policy rates by 25 basis points this week.
Also, both institutions said the BSP could decide to raise key rates twice more—by 25-basis-point increments—in the second half of the year.
This would mean that the borrowing rate would climb to 5.25 percent, while the lending rate would rise to 7.25 percent.