Bangko Sentral seen keeping key rates unchanged

British banking giant HSBC sees the Bangko Sentral ng Pilipinas keeping its key interest rates steady for the rest of the year as current settings were enough to support the country’s high-growth, low-inflation environment.

“The central bank is in a sweet spot. There is plenty of policy space to keep rates low to support private consumption,” HSBC’s Hong Kong-based economist Trinh Nguyen said in a research report on Tuesday.

“Both financial and tropical storms came to the Philippines but did not cause the havoc that had been feared,” the research said, noting the country’s 7.6-percent year-on-year economic growth in the first semester.

Nguyen said the growth was mostly due to resilient domestic demand that, in turn, offset lackluster external demand for Filipino goods.

“With remittances likely to stay resilient, public spending strong and external demand recovering in second half of 2013, the growth outlook for the remainder of the year is rosy,” the research said.

HSBC’s baseline scenario is that the global economy should enjoy a recovery toward the end of 2013 on rebounding growth in the United States, Japan, China and Europe. This meant that final demand would likely improve on the back of stronger remittance inflows and net exports, the economist said.

Coupled with stronger growth, Nguyen said inflationary pressures were trending lower despite stormy weather, a weaker currency and higher oil costs. The country’s August inflation reached a four-year low of 2.1 percent year on year, much lower than the central bank’s target band of 3-5 percent.

Even with the currency weaker, oil prices higher and money supply growth accelerating, HSBC sees the country’s headline inflation remaining at the bottom of the central bank’s target band in the next six months.

“This means the central bank can comfortably maintain its policy stance and keep the main policy rates as well as the SDA (special deposit account) rate low at this Thursday’s meeting (Sept. 12),” Nguyen said.

The SDA is a high-yield deposit facility opened by the BSP to boost its mopping-up operations. But this year, it has ordered the phaseout of retail placements in the facility.

After this week’s policy-rate setting, the BSP has two more monetary meetings for 2013—Oct. 24 and Dec. 12.

“We do not expect a change of policy at any of them, although this is also contingent on how external developments unfold,” she said.