Barclays sees BSP keeping its key rates

MANILA, Philippines - London-based investment bank Barclays Capital is convinced that the Bangko Sentral ng Pilipinas (BSP) would keep its key policy rates at record lows this week despite key developments in Europe and Korea as well as the stronger-than-expected growth registered in the first quarter of the year.

Barclays Capital economist Prakriti Sofat said the BSP would keep its overnight borrowing rate at a record low of four percent and its overnight lending rate at six percent.

“On the policy front, we maintain our view that BSP will stand pat this week to continue to support growth as policymakers remain watchful of developments in Europe,” Sofat stressed.

The BSP slashed its key policy rates by 200 basis points between December of 2008 and July of 2009 and at the same time introduced liquidity enhancing measures to cushion the impact of the global financial crisis.

It kept its key policy rates unchanged for seven consecutive policy setting meetings or since July last year. The board is scheduled to meet on June 3 to decide whether or not it would tweak its key policy rates.

However, Sofat said monetary authorities would continue withdrawing its crisis-related measured by raising its reserve requirements for banks to 21 percent from 19 percent to siphon off liquidity from the financial system.

“There is an outside chance that the BSP hikes the reserve requirements but that would be contrary to the long-term goal of reducing costs,” she added.

Barclays Capital added that rising inflation remains at comfortable levels with the decline in global commodity prices giving policymakers more breathing space.

Several investment banks see the BSP’s Monetary Board finally adjusting its key policy rates in the third quarter of the year after the country’s gross domestic product (GDP) grew at its fastest pace in almost three years in the first quarter.

London-based think tank Capital Economics said the BSP would likely keep its policy rates unchanged next week before adjusting the rates upwards in the middle of July with the release of a stronger-than-expected 7.3 percent GDP growth in the first three months of the year.

Initially, Capital Economics said the BSP would hold its overnight borrowing rate at a record low of four percent and its overnight lending rate at six percent on June 3 before jacking up the rates by 25 basis points on July 15.