BSP seen keeping rates steady

British banking giant HSBC sees the Bangko Sentral ng Pilipinas keeping key interest rates steady during its policy rate setting on Thursday next week, citing the country’s strong growth momentum as well as looming consumer price pressures.

In a commentary issued on Wednesday, HSBC economist Trinh Nguyen said supply disruptions from the recent floods, as well as higher global commodity prices and high domestic demand, had caused inflation to accelerate in August.

“The Philippines has enjoyed strong growth so far this year due to strong private and public spending. The elevated core inflation readings in recent months reflect this. With global oil prices still high and headline inflation likely to pick up significantly in first quarter of 2013, the BSP will hold rates steady to monitor price and external conditions next week,” Nguyen said.

The BSP’s overnight borrowing rate stands at a record low of 3.75 percent, after the last 25-basis point cut implemented in July.

The HSBC report was issued after the government announced that the August year-on-year headline inflation rate had come in at 3.8 percent, higher than the market consensus of 3.5 percent based on a Bloomberg poll.

HSBC, for its part, had expected a 3.7-percent inflation rate for the month.

Stripping out volatile items such as food and energy, the country’s core year-on-year inflation rate likewise inched up to 4.3 percent from 4.1 percent in July.

On a month-on-month basis, core inflation rose by 0.4 percent, seasonally adjusted, from 0.6 percent in July.

Nguyen said the rapid uptick of prices in August was due to three main reasons: short-term food supply shocks from the floods; higher domestic oil prices, which translated to higher transportation costs; and still very elevated domestic demand, which drove up the costs of core items, stripping out food and transportation.

Nguyen said that while the BSP remains “mindful of weather, calamity-related disturbances as it affects supply,” the monetary authority would not be able to deny the elevated costs of commodity prices, such as oil, as well as pent-up demand in the economy.

“The higher-than-expected headline inflation August number will motivate monetary officials to keep rates on hold,” she said.