BSP seen to keep key rates steady unchanged – Barclays

MANILA, Philippines - UK-based investment bank Barclays said it expects the Bangko Sentral ng Pilipinas to leave key policy rates unchanged when it revisits them this week.

“BSP to keep policy on hold and continue to signal comfort with the current policy stance,” the bank said in a report.

The BSP’s policy-making Monetary Board has kept the overnight borrowing and overnight lending rates steady last month as inflation expectations fell within the two to four percent target ranges for this year and next.

The next rate-setting meeting has been slated for Thursday (March 26).

Last week, BSP Governor Amando M. Tetangco Jr. reiterated the current stance of monetary policy settings “remain appropriate” given the robust domestic demand and manageable inflation environment.

Tetangco made the comment after his counterparts in South Korea and Thailand reduced benchmark interest rates to support their own economies. Other central banks in Malaysia and Australia, meanwhile, maintained their interest rates earlier this month.

The different monetary policy settings across the region is seen with the volatility in financial markets and capital flow in the short term, Tetangco said.

However, he stressed adjustments in the BSP’s policy settings rely heavily on domestic demand and supply factors.

In a separate interview last week, Tetangco noted there are other instruments the BSP can deploy to counter external risks aside from tweaking policy rates.

He said while the BSP is mindful of risks to financial stability as investors continue to rebalance their portfolios in search of yield, the central bank is aware that policy rates sometimes are not the best tool to address financial stability pressures especially when inflation expectations are well-anchored.

 “The BSP will continue to monitor global and domestic developments to assess which of the instruments in our tool kit would be most effective should these pressures become persistent,” Tetangco said.

The central bank last adjusted key policy rates in the third quarter of last year, increasing them by a total of 50 basis points to anchor inflation expectations. The reserve requirement ratios and the special deposit account rate were also hiked in early 2014 to bring down excessive liquidity growth.