Metrobank sees BSP keeping policy rates unchanged till second half

MANILA, Philippines - The Metrobank Group of taipan George SK Ty believes the Bangko Sentral ng Pilipinas (BSP) would keep its key policy rates on hold until the second half of the year on the back of benign inflation outlook.

In its economic outlook and forecast entitled “The Economic Weather Report,” Metrobank said the BSP’s Monetary Board would keep the overnight borrowing rate at a record low of four percent and the overnight lending rate at six percent but would continue to unwind its liquidity enhancing measures adopted last November of 2008.

“Research expects the BSP to continue keeping the benchmark interest rates on hold until the second half, in view of the still fragile, albeit improving, economy and relatively subdued inflation numbers,” the bank added.

It would be recalled that monetary authorities slashed its key policy rates by 200 basis points between December of 2008 and July of 2009 to cushion the impact of the global financial crisis. They also introduced several crisis-related measures.

The BSP has kept its policy rates on hold but decided to phase out several liquidity enhancing measures due to clearer signs of increasing momentum in economic recovery.

Last Jan. 28, the BSP raised the rate on a short-term lending facility to four percent from 3.5 percent marking the start of an exit strategy with the tweaking of exiting liquidity enhancing measures.

Last March 11, the central bank tweaked crisis-related measures including the reduction of the peso rediscounting budget to P40 billion from P60 billion as well as the restoration of the loan value of all eligible rediscounting papers to 80 percent from 90 percent of the borrowing bank’s credit instrument.

It also decided to bring back the non-performing loan (NPL) ratio requirement of two percentage points from 10 percentage points above the latest available industry average NPL for banks wishing to avail of the rediscounting facility.

“The MB also decided to withdraw liquidity enhancing crisis response measures given ample liquidity and the sustained stability of financial markets,” Metrobank said.

The bank sees inflation averaging five percent this year from 3.9 percent last year. This is within the BSP inflation target of between 3.5 percent and 5.5 percent this year.

Metrobank said inflation is seen to continue its upward trend in the coming months due to higher oil prices and the impact of the El Niño weather conditions but would still be within the BSP’s target range.

“Inflationary pressures coming from a rise in world oil prices will be tempered by a stronger peso. Strong upward pressure may come from supply bottlenecks and high energy prices due to the El Niño phenomenon, but the impact is expected to gradually ease towards the latter part of the year,” Metrobank said.

The bank sees the country’s domestic output as measured by the gross domestic product (GDP) expanding by 3.7 percent this year after escaping recession last year with a 0.9 percent GDP growth.

“The rosy outlook on the global recovery augurs well for the domestic economy. The positive impact would be felt through the increased remittance inflows due to a rise in OFW deployment and improved exports growth through the rebound in world trade,” the bank said

Negative factors that could affect growth include a worse-than-expected El Niño that would pull down the growth of the agricultural sector as well as the manufacturing sector due to the weather condition’s impact on the country’s electricity supply.

Economic managers through the Development Budget Coordination Committee (DBCC) sees the country’s GDP expanding between 2.6 percent and 3.6 percent this year.