HSBC sees BSP keeping rates steady

MANILA, Philippines - The Hongkong and Shanghai Banking Corp. (HSBC) sees the Bangko Sentral ng Pilipinas (BSP) keeping interest rates unchanged during its last policy-setting meeting for this year scheduled on Thursday.

In a research note, HSBC economist Joseph Incalcaterra said the BSP is constrained to hold policy rates as it is scheduled to meet ahead of the US Federal Open Market Committee meeting.

“With such coincidental timing, the BSP is unsurprisingly constrained in terms of its course of action,” he said.

Incalcaterra added HSBC expects the US Fed to tweak its near-zero interest rates for the first time since 2006.

 “There is little need to tweak policy at this point. The BSP has clearly indicated it is comfortable with its current stance and we think it is unlikely to make any tweaks until the operational changes pencilled in for the second quarter of 2016,” he said.

The BSP is set to put in place the interest rate corridor (IRC) system in the second quarter of next year.

Incalcaterra said economic growth and benign inflation environment in the country give no reason for the BSP to tweak interest rates during its last policy-setting meeting for 2015.

 “Moreover, activity and inflation data over the past month suggest no need for policy changes, while liquidity is more than sufficient to fuel growth,” Incalcaterra said.

The country’s gross domestic product (GDP) growth accelerated to six percent in the third quarter of the year from the revised 5.8 percent in the second quarter on the back of robust domestic demand and improving government spending.

This brought the GDP expansion to 5.6 percent in the first nine months, way below the seven to eight percent target penned by economic managers.

On the other hand, inflation kicked up to 1.1 percent in November from the record low of 0.4 percent in October due to a steep rise in food prices. This brought the average inflation to 1.4 percent in the first 11 months, lower than the BSP target of between two and four percent.

“As we mentioned last month, inflation likely troughed in October but will stay contained despite some upside risks to food consumer price index from El Niño,” he said.

Incalcaterra said inflation is expected to fall below the BSP target this year.

The BSP has further lowered its inflation forecast to 1.4 percent instead of the previous projection of 1.6 percent for this year because of the continuing softening of oil prices as well as other food prices.

Likewise, inflation forecast for 2016 was reduced to 2.3 percent instead of 2.6 percent and for 2017 to 2.9 percent instead of three percent amid the continued decline in oil and other commodity prices as well as an economic growth fueled by continued consumer spending.