ANZ expects BSP to keep rates steady

MANILA, Philippines - Australian bank ANZ expects the Bangko Sentral ng Pilipinas to keep its rates steady until the first half of 2014 amid manageable inflation outlook and expectations.

In a research note, ANZ said “we maintain our call for the Bangko Sentral ng Pilipinas to hold its policy overnight borrowing rate at 3.50 percent through H1 (first half) 2014.”

The central bank’s Monetary Board has kept overnight borrowing and lending rates at 3.5 percent and 5.5 percent, respectively, since the start of the year.

The Monetary Board, in its most recent rate-setting meeting last July 25, said its action was driven by the manageable inflation environment and robust economic growth.

“With 12-month average inflation at 3.1 percent year-on-year as of July, the scope to hike rates has declined,” ANZ pointed out.

For the seven-month period, inflation stood at an average of 2.9 percent.

A rate hike in the second half of next year may be possible amid a rise in domestic liquidity, the bank said.

“However, we acknowledge the risks of a possible 25-basis point rate hike in the second half of 2014, in light of the recent surge in M3 growth,” ANZ said.

M3 – a measure of domestic liquidity – expanded by 20 percent to P5.7 trillion as of end-June from the same period a year ago.

“With domestic liquidity swelling, we see upward risks to our 2014 inflation forecast of 3.4 percent,” the bank said.