BSP seen to keep key rates steady

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is expected to keep key policy rates steady when it meets this week, UK-based investment bank Barclays said.

In a research note published yesterday, Barclays said it expects the central bank’s policy-making Monetary Board to maintain overnight borrowing and overnight lending rates at record lows.

“[The] BSP meets on the back of strong GDP (gross domestic product) figures in the Philippines, and with the impact from Super Typhoon Haiyan (local name: Yolanda) appearing to be less than initially feared,” Barclays said.

“We expect the BSP to look through supply-shock driven spikes in inflation as inflation expectations remain well-anchored,” the bank continued.

The Monetary Board will have its first rate-setting meeting for the year on Thursday. Overnight borrowing and overnight lending rates are currently at 3.5 percent and 5.5 percent, respectively.

The MB kept key policy rates steady through 2013 on the back of a manageable inflation rate and a robust economic growth.

Inflation averaged three percent last year, at the low-end of the central bank’s target of three to five percent, while economic growth came at 7.2 percent, surpassing government’s expectations of six-to-seven percent.

Inflation in December has risen to a two-year high of 4.1 percent as recent typhoons caused food supply disruptions, and the central bank sees the rate to remain elevated and settle at 3.4 to 4.3 percent in January.

The BSP expects inflation to average 4.5 percent this year, near the upper end of the three to five percent target range.

Barclays stressed that as inflation is expected to rise this year, the BSP is seen tweaking policy rates in the second half.

“[G]iven the lagged impact of strong growth, we expect core inflationary pressures to rise and continue to expect the BSP to hike the policy rate by 25 basis points to 3.75 percent in Q3 (third quarter) 2014,” Barclays said.

The central bank last adjusted its key policy rates in October 2012, when it reduced the overnight borrowing and overnight lending rates by 25 basis points each.

The BSP then took an accommodative stance in order to encourage more spending and provide a boost to the Philippine economy.