FMIC, UAP expect BSP to continue tightening monetary policy

MANILA, Philippines - The Bangko Sentral ng Pilipinas is expected to continue tightening policy further although the First Metro Investment Corp. and University of Asia and the Pacific said a pause may be near, amid easing inflationary pressures. 

 “We see another round of monetary policy tightening moves before the end of the year,” the September issue of Market Call reported yesterday.

The BSP’s policymaking Monetary Board already hiked key rates by a total of 50 basis points this year to ensure inflation would remain within the three to five percent target this year, and the two to four percent goal in 2015.

Ealier this year, monetary authorities also raised the banks’ reserve requirements and the Special Deposit Account rate to rein in excess liquidity in the domestic financial system.

But FMIC and UA&P said “The BSP is likely to have a pause as consistently softer inflation figures hit home starting September.”

 “Besides, with the previous BSP measures clamping down on liquidity, money supply is likely to slide to a single-digit growth by November.”

Inflation remained at 4.9 percent in August from the same level in July amid sustained increases in food prices and utility rates. The rate has averaged 4.4 percent in the eight months to August, above the midpoint of the BSP target this year.

“We think inflation has peaked at 4.9 percent, considering that rice harvests start in September and 500,000 MT (metric tons) of new imports begin to arrive in October,” FMIC and UA&P said.

“Manila Mayor (Joseph) Estrada has lifted the truck ban in the city, which should ease the flow of food items to Metro Manila and other parts of the country. Besides, crude oil prices have broken through their strong support levels both in the US (WTI) and Europe (Brent) and are likely to continue their downward trend until H1 (first half) of 2015,” they continued.

The BSP has forecast inflation to settle within 4.1 and 4.9 percent in September because of easing price pressure on food items, partly because of improved supply conditions in the capital.