BSP seen to keep rates till Q3
Kathleen A. Martin (The Philippine Star) - February 14, 2015 - 12:00am

MANILA, Philippines - The domestic economy’s robust growth and the continuous decline in the inflation rate should allow the Bangko Sentral ng Pilipinas to keep rates steady until the third quarter this year, UK-based Barclays said.

“Growth is likely to remain robust in 2015, and the Philippines should be a significant beneficiary of lower oil prices… However, we believe the easing in inflationary pressures and the fall in money supply growth gives the BSP room to keep interest rates on hold for the time being,” Barclays said in a research note.

“We continue to forecast the next hike in the policy rate to take place in the fourth quarter,” the bank continued.

Monetary authorities on Thursday maintained the overnight borrowing and the overnight lending rates at four percent and six percent, respectively following a lower inflation path seen for this year and the next.

The BSP cut its forecast for average inflation this year to 2.3 percent from a December estimate of three percent, while the projection for 2016 was also lowered to 2.5 percent from 2.6 percent.

BSP Deputy Governor Diwa C. Guinigundo, during a briefing last Thursday, said the downgrade in the forecasts reflected the lower inflation prints for December and January and the continuous decline in oil prices.

He added the stronger peso, the expected slower global growth and the delays in the planned power rate adjustments were also among the reasons for the lower projections.

Inflation eased to an 18-month low in January at 2.4 percent from 2.7 percent in December on lower utility rates and cuts in domestic pump prices.

Asian benchmark Dubai crude has averaged $45.73 per barrel in January, lower than its $62.56-per-barrel average in December last year and less than half the $103.99-per-barrel average in January 2014.

An uptick in oil prices, however, was observed in the first two weeks of February as Dubai crude averaged $53.57 per barrel.

The low inflation environment has helped support domestic consumption, the main driver of the domestic economy.

Domestic economic growth surprised at 6.9 percent in the last quarter of 2014 from a dismal 5.3 percent in the third quarter. This brought the full-year expansion to 6.1 percent, short of the government’s 6.5 to 7.5 percent target but still among the fastest prints in Asia during the period.

The government earlier this year vowed to accelerate public spending, which dragged down growth last year especially in the third quarter, and build on the momentum seen in the last quarter of 2014.

The Philippine economy is expected to grow by seven to eight percent this year.

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