BSP keeping rates unchanged – ANZ

MANILA, Philippines – The Australia and New Zealand (ANZ) Banking Group sees the Bangko Sentral ng Pilipinas (BSP) keeping interest rates steady this week as inflation eased in January after kicking up for two straight months.

Eugenia Fabon Victorino, economist for ASEAN and the Pacific at ANZ, said the BSP would keep interest rates unchanged during its first policy-setting meeting this year on Feb. 11.

“BSP appears comfortable with its policy stance. Even with the recent pickup in headline inflation, we think BSP is likely to stand pat on policy rates, emphasizing that growth and inflation risks stem largely from poor weather and the uncertain global backdrop,” Victorino said.

Inflation eased to 1.3 percent in January from 1.5 percent in December due to cheaper utility rates and the roll back of the minimum fares for jeepneys.

The consumer price index (CPI) eased to a 20-year low of 1.4 percent last year from 4.1 percent in 2014 on the back of stable food prices and cheaper utility rates arising from the continued softening of oil prices in the world market.

Victorino said inflation is expected to pick up but would remain anchored on the two percent to four percent target set by the BSP for this year and next year due to the impact of the severe and prolonged El Niño weather disturbance.

“We continue to see the near-term upside risks to inflation as centered on El Niño and its potential impact on agricultural prices, as dry weather conditions have strengthened in recent weeks,” she said.

Victorino said downside risks are likely to emerge from further decline in oil prices leading to lower retail pump prices and electricity tariffs.

ANZ sees the BSP raising interest rates next year as monetary authorities have enough space to keep its policy stance amid the country’s strong external position and low level of debt.

“We continue to expect BSP’s next policy move to be a hike, though we see only see a first hike coming in the second quarter of 2017. We think the central bank is likely to hike when growth has recovered sufficiently and inflation is high enough to justify an increase in interest rates,” Victorino said.

The economist explained the country’s robust foreign exchange buffer as well as low level of short-term debt would enable the Philippines to survive external shocks caused by the ongoing normalization of interest rates in the US as well as the economic slowdown in China.