BSP likely to maintain policy tightening in May

MANILA, Philippines - The recent slew of positive data will likely prompt the Bangko Sentral ng Pilipinas to continue tightening policy as early as May, Singapore-based bank DBS said.

“The external balance position remains strong and the recent strong data is likely to embolden the central bank to tighten its policy further,” the bank said in a research note.

“Expect a total of 50 bps (basis points) in the key policy rate by yearend. A move in the upcoming meeting is not to be ruled out, although we still think that there is a higher chance of this happening in the second half of 2014,” DBS added.

Monetary authorities kept key policy rates steady last March 27 but hiked the banks’ reserve requirement ratio by a percentage point to pull down the high liquidity growth.

This action was seen by most analysts as the start of a monetary tightening cycle, and all eyes are on the next policy meeting on May 8.

DBS said recent economic indicators have pointed to a sustained robust gross domestic product (GDP) growth for the country, thus providing more reasons for the central bank to raise key interest rates.

“Data released last week continued to support GDP growth outlook in the economy,” DBS said.

“February exports growth came in at 24.4 percent year-on-year, fastest since December 2010. Even more encouraging was the robust 26.6 percent year-on-year jump in exports of electronic products,” the bank added.

DBS further said: “Meanwhile, net FDI (foreign direct investments) reached $1 billion in January, highest in the past two years.”

The Monetary Board revisits policy settings every six weeks. Overnight borrowing and overnight lending rates have been maintained at 3.5 percent and 5.5 percent, respectively, since October 2012.

BSP Governor Amando M. Tetangco, Jr., following a US Federal Reserve move that ended March 19, said “early measured adjustments” in monetary policy is “ideal.”

Tetangco, reacting to the Fed’s signal that it may overhaul guidance in keeping interest rates near zero, stressed that gradual movements in monetary policy would be less disruptive in the economy.

The US Fed since January has been reducing its massive monthly purchases of US Treasuries and mortgage bonds. The pace and volume of scaling down the stimulus has heightened volatility in markets because when fully taken out will lead to higher interest rates.