BSP seen keeping rates steady at record lows

MANILA, Philippines - Societe Generale SA of Hong Kong and British banking giant HongKong and Shanghai Banking Corp. (HSBC) said they expect the Bangko Sentral ng Pilipinas (BSP) to adopt a wait-and-see mode after a series of interest rate cuts to support domestic growth.

Wee-Khoon Chong, a strategist at Societe Generale, said the BSP’s Monetary Board would opt for a wait-and-see stance during its next policy rate-setting meeting scheduled next month.

“The next meeting will be on April 19 and status quo is expected. April should see another round indirect easing on the back of the new non-remuneration unified reserve requirement,” Chong stressed.

As part of the changes in its reserve requirement policy, the central bank decided to slash the bank reserve requirement ratio to 18 percent from the current level of 21 percent starting April 6.

The move would offset the higher operational costs of banks and would free up to P100 billion worth of funds to the financial system.

Chong pointed out that the last statement of BSP Governor Amando Tetangco Jr. during the March 1 policy rate setting meeting was noticeably less dovish compared to the Jan. 19 meeting.

“The BSP press statement is less dovish than the one in January. BSP seems to be concerned over inflation,” the strategist said.

The Monetary Board has so far slashed interest rates by 50 basis points this year, bringing the overnight borrowing rate back to a record low of four percent and the overnight lending rate to six percent.

The first cut was made last Jan. 19 followed by another 25-basis point reduction on March 1 due to benign inflation outlook and slower than expected global economic growth.

HSBC economist Trinh Nguyen, meanwhile, said in its latest data reaction that the decline in the growth in remittances for two straight months could prompt the BSP to keep interest rates steady until the end of the year.

Nguyen said the slowdown in the growth of remittances to 5.4 percent in January would give less support to domestic spending in the Philippines.

She pointed out that the government has implemented both monetary and fiscal expansion to boost domestic demand and mitigate the effect of remittance slowdown.

“As such, we do not expect further cuts from the BSP and expect rates to stay at four percent for the rest of the year,” she added.

Tetangco earlier hinted that monetary authorities may pause after reducing key interest rates early this year as soaring oil prices in the world market continue to threaten to stoke up inflation.

“Pausing gives us time to digest and monitor the impact of past policy actions and to consider other relevant data. A pause is always on the table, as are other policy moves,” the BSP chief said.