MANILA, Philippines - Monetary authorities are expected to keep key policy rates steady when they meet this week, financial institutions said in separate research notes.
“The BSP (Bangko Sentral ng Pilipinas) is unlikely to cut the benchmark rate, given buoyant GDP (gross domestic product) and credit growth, as well as the Fed normalizing rates later this year,” Bank of America (BofA) Merrill Lynch said in its latest Asia Economic Weekly.
The economy grew by 6.9 percent in the fourth quarter of 2014 from a slower-than-estimated 5.3 percent in the third quarter. However, full-year expansion of 6.1 percent was still short of the government’s 6.5 to 7.5 percent target and slower than the 7.2 percent recorded in 2013.
Bank lending, meanwhile, has continued to increase above 15 percent, reflecting the strength of economy.
At the same time, markets are preparing for a hike in the US Federal Reserve’s interest rates, which have been kept near-zero following the global financial crisis of 2008.
The BSP’s Monetary Board will revisit policy settings on Feb. 12.
BofA Merrill Lynch stressed that it does not see the BSP increasing key policy rates this year although the falling inflation rate and the strong peso may raise the prospect for easing.
“If at all, easing may come via SDA (Special Deposit Account) rates or commercial bank reserve requirements, rather than policy rates,” the bank said.
UK-based Barclays, in a separate research note, also said the central bank will likely hold the overnight borrowing and overnight lending rates at four percent and six percent, respectively.
“BSP to keep policy on hold with post-decision commentary likely to maintain the more neutral tone of late. The BSP could also lower its 2015 inflation forecast,” the bank said.
Inflation eased to an 18-month low of 2.4 percent in January from 2.7 percent in December.
The BSP has forecast the rate to average three percent this year, at the midpoint of its two to four percent target range. In 2014, inflation averaged 4.1 percent, well-within the three to five percent goal.
The research arm of the Metropolitan Bank and Trust Company also sees no adjustment in key policy rates on Thursday or even for the rest of the year.
“Metrobank Research expects overnight RRP (reverse repurchase) policy rate and SDA rates to remain steady at four percent and 2.5 percent, respectively, on low money supply growth and benign inflation expectations,” the firm said in the latest Weekly Views from the Metro.
The Monetary Board in December left key policy rates unchanged as inflation expectations fell within the ranges for this year and the next. The overnight borrowing and overnight lending rates were raised in the third quarter of last year to anchor inflation and ensure it will be kept within the targets.
Earlier in 2014, the banks’ reserve requirements and the SDA rates were also increased to rein in excessive liquidity growth.