MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) will likely keep policy rates at 3.5 percent for the rest of the year, a report by Australia and New Zealand (ANZ) Bank said.
The bank also said rates on special deposit accounts (SDA) would remain on hold at two percent as room to cut rates on either of the policy tools has narrowed with a 7.5 percent gross domestic product (GDP) growth in the second quarter.
“In our view, the potential output of the Philippines has increased and we expect inflation to be held at bay despite robust domestic growth,†Eugenia Fabon Victorino, analyst for Asia Pacific of ANZ said.
The monetary authority is expected to maintain a wait-and-see approach as well as assess whether the release of funds from the SDAs has led to significant increase in credit to productive sectors of the economy.
The bank said it sees significant downward pressure to the 2013 average inflation forecast of 3.1 percent. “With inflation undershooting BSP’s target the past five months, we acknowledge the risk of average inflation falling below BSP’s three to five-percent target range for the 2013-2014 policy horizon,†Victorino said
“We stand by our call for monetary policy to remain on hold through 2013, while penciling in a 25 basis points rate hike in the second semester of 2014 as we believe potential growth may in fact be higher,†ANZ Bank said.
Headline inflation for August eased to 2.1 percent from 2.5 percent in July.
This is the fifth straight month that headline inflation breached the BSP’s three to five-percent target range on the downside, pulling down the 12-month average to 2.9 percent.