No change in BSP rates seen

MANILA, Philippines - ING Bank expects the Bangko Sentral ng Pilipinas (BSP) to keep its key policy rates steady next week on the back of lower consumer prices.

ING Bank senior economist Joey Cuyegkeng said the BSP is expected to keep interest rates unchanged during its policy-setting meeting on Aug. 13.

Cuyegkeng said the investment bank sees inflation at 0.9 percent in July from 1.2 percent in June before trending upwards toward the end of the year.

“Inflation is expected to creep higher toward the end of the year. We expect average inflation rate of 1.7 percent for 2015 and 2.8 percent in 2016,” he said.

The BSP has set an inflation target of between two percent and four percent for this year and next year.

He pointed out the country’s financial sector would benefit from the country’s growing domestic output as measured by the gross domestic product (GDP).

Economic managers see the country’s GDP expanding between seven percent and eight percent this year. However, the GDP growth slowed down to 5.2 percent in the first quarter of the year.

“Financial stability is likely to be maintained since economic growth would improve from the disappointing first quarter GDP growth of 5.2 percent,” he said.

According to Cuyegkeng, financial markets are likely to be volatile as investors and markets adjust to varying views on China and on US monetary policy.

 “But we do not think the volatility would lead to an unstable Philippine financial sector and economy,” Cuyegkeng said.

He explained the country’s banking sector remained strong on the bank of strong capital, low non-performing loans (NPLs), and more than adequate loan loss cover.

“With such expectations, we expect no change in monetary policy rates at the August meeting,” he said.

The ING Bank economist said monetary authorities are likely to keep policy settings steady for now despite very near term disinflation and higher financial market volatility.