BSP seen keeping rates steady

MANILA, Philippines - The Bangko Sentral ng Pilipinas is expected to keep key policy rates steady when it meets this week to revisit policy settings, UK-based Barclays said.

“With the decline in commodity prices, we expect the BSP to keep rates unchanged, but maintain a hawkish tone,” the bank said.

Inflation eased to 4.4 percent in September from 4.9 in August amid lower increases in food prices and housing and utility rates. The August rate matched the pace in July, when inflation accelerated to a 33-month high.

Monetary authorities, during their previous rate-setting meeting on Sept. 11, raised the overnight borrowing and overnight lending rates by 25 basis points to four percent and six percent, respectively. This was done to keep inflation within the three-to five-percent target this year and the two-to four-percent band in 2015.

The policymaking Monetary Board will revisit policy settings on Oct. 23.

Barclays said it expects the BSP to maintain key policy rates until the first quarter of next year as it expects the next 25-bps rate hike to happen in the second quarter of 2015.

The bank also forecasts another 25-bps increase in the key policy rates in the third quarter of next year.

The BSP has raised key policy rates by a total of 50 bps this year, to keep inflation expectations anchored. It has also increased the reserve requirement ratios and the Special Deposit Account rate to rein in excessive liquidity growth.

Last week, BSP Deputy Governor Diwa C. Guinigundo said improved supply-side conditions such as the gradual easing of port congestion in Metro Manila may have a “favorable impact” on inflation.

He also said inflation could have already peaked when it hit 4.9 percent in August and in July, and the rate’s average should remain within the central bank target for the year.

The BSP has forecast inflation to average 4.5 percent this year and by 3.8 percent in 2015.

So far, inflation has averaged 4.4 percent in the nine months to September. The October inflation data should be out by the first week of next month.