Another SDA rate hike seen

MANILA, Philippines - Singapore based-DBS Bank expects the Bangko Sentral ng Pilipinas to further increase the interest rate on the special deposit accounts (SDAs).

 “Bangko Sentral ng Pilipinas is set to further tighten its monetary policy this week,” the bank said in a research note. 

 “Expect the central bank to leave the key policy rate unchanged… while  another adjustment on the special deposit account is likely to be seen,” it said.

The Monetary Board will be revisiting policy settings today.   Overnight borrowing and overnight lending rates, currently at 3.5 percent and 5.5 percent, respectively, were last adjusted in October 2012.

The bank said it expects Philippine economic growth to settle within six percent and seven percent this year despite the disappointing 5.7 percent first quarter growth.

“The growth-inflation dynamics continue to support the view for a tighter monetary policy stance,”  the bank said.

 “GDP growth momentum remains strong in the near-term, despite little boost from export growth. Domestic demand is healthy, even if the prospect of fiscal spending comes under pressure from the recent controversy surrounding the government’s special fund,” it added.

DBS said it expects Philippine inflation rate   to continue climbing for the rest of the year following recent typhoons that devastated the country.

 “We still see a good change that CPI inflation may cross the five percent year-on-year mark in the coming months, even if the average for the whole year is likely to be within the central bank’s comfort zone,” the bank said.

Inflation eased to 4.4 percent in June after hitting a 30-month high in May, bringing the first-half average to 4.2 percent. The central bank expects  the rate to settle within three to five percent this year.

 “From a policy perspective, the BSP also prefers to make the adjustments from a position of strength,” DBS said.

 “With external balances remaining sound, anchored by strong overseas foreign workers remittances, expect BSP to continue tightening its monetary policy,” it said.

The BSP earlier hiked the banks’ reserve requirement ratio by a total of 200 basis points and the SDA rate by 25 basis points to 2.25 percent to curb the high liquidity growth.