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BSP rate hike possible in Q2

Moncupa

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is likely to raise interest rates toward the end of the second quarter amid the country’s sustained economic expansion and rising inflation, East West Banking Corp.  president and chief executive officer Antonio Moncupa said yesterday.

Moncupa said the Monetary Board is likely to keep interest rates steady on Thursday but could tweak key policy rates in the second quarter.

“Even while the BSP is not expected to raise its policy rate in its March 23 meeting, we share the market view of a likely increase in May and/or June,” Moncupa said in a text message.

Last week, the US Federal Reserve imposed a 25-basis point hike, the second time in three months, but assured that any further increases this year would be gradual.

BSP Governor Amando Tetangco Jr. sees no need to tweak the country’s policy settings as the rate increase was in line with market expectations.

“The recent Fed hike was generally characterized as dovish hike with a clear statement of gradual future rate hikes,” Moncupa said.

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The US has retained its economic growth forecasts at 2.1 percent for 2017 and 2018, suggesting the inflation would not be under much pressure to rise, according to Moncupa.

“The immediate result was a general weakening of the US dollar and flattening of the US yield curve. This somehow help the peso avoid depreciation,” he said.

He explained oil prices are expected to remain near current level of $50 per barrel helping alleviate inflation.

The banker said the country’s gross domestic product growth would remain well above six percent this year from 6.8 percent last year.

On the other hand, inflation is seen staying within the mid point of the two to four percent target set by the BSP for this year.

“Given all these, we share the market view that interest rates are expected to rise this year,” he said.

Last Feb. 9, the Monetary Board kept interest rates steady despite the growing upside pressure on inflation as well as the challenging global environment. The policy rates were maintained at 3.5 percent for the overnight lending facility, three percent for the overnight reverse repurchase facility, and 2.5 percent for the overnight deposit facility.

However, the body raised its inflation forecast to 3.5 percent instead of 3.3 percent for this year and to 3.1 percent instead of three percent for 2018.

Inflation kicked up to a 27-month high of 3.3 percent in February from 2.7 percent in January due to higher oil prices, fare hikes, and more expensive electricity rates.

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