BSP to hold rates on strong growth, low inflation

Reuters

Posted at Mar 25 2015 04:40 PM | Updated as of Mar 26 2015 12:40 AM

MANILA - The Philippine central bank is expected to leave its main policy rate steady on Thursday and keep it unchanged for at least a few more months as low inflation and solid economic growth allow it to buck the global tide of monetary policy easing.

All 11 economists polled by Reuters expect the Bangko Sentral ng Pilipinas (BSP) to leave the overnight borrowing rate steady at 4 percent for a fourth straight meeting.

At least one analyst raised the possibility the central bank would cut banks' reserve requirement ratio, currently at 20 percent, on Thursday to help contain the peso's strength, which is causing headaches for exporters and dependents of overseas Filipino workers.      

"Growth may be ailing elsewhere, but not in the Philippines. Consumption remains solid, thanks to steady demand, helped by a favorable demographic transition and excess liquidity," Trinh Nguyen, economist at HSBC, said in a research note.

The Bank of Thailand cut its policy interest rate this month in a surprise move. India has cut rates twice already so far this year and China has eased policy two times, with more moves expected. Singapore, Australia and Indonesia have also eased.

BSP has kept its main policy rate on hold since October as inflation cooled, helped by lower food and fuel prices.

Governor Amando Tetangco said on Wednesday that fiscal and monetary authorities have sufficient room to adjust their policies if needed, with the country in a sweet spot of strong growth and low inflation.

He said the 7-8 percent growth target this year was within reach, while inflation expectations remain consistent with the central bank's 2-4 percent target levels.

Six of the 11 analysts in the same poll think the central bank's next policy action will be a rate hike, but the timing of such move will probably be determined by the direction of oil prices and interest rates in the United States.

Three of the six said the central bank would likely start raising rates in the second half of this year, while the other three believed it will happen in 2016.

One economist predicted a cut to banks' reserve requirement ratio in May. The rest did not reply to a question about the timing of the central bank's next policy move.

Tetangco has repeatedly said that the central bank's future policy action will be data-dependent, and he told Reuters in February the timing and magnitude of any interest rate hike would not be determined by the U.S. Federal Reserve's actions.