BSP likely to keep rates steady next week

MANILA, Philippines – DBS Bank Ltd. of Singapore said it expects the Bangko Sentral ng Pilipinas (BSP) to hold interest rates steady next week on the strength of the country’s sustained economic expansion.

Gundy Cahyadi, economist at DBS Bank, said the central bank’s Monetary Board would likely keep rates unchanged during its first policy-setting meeting this year on Feb. 11 after a stronger-than-expected gross domestic product (GDP) growth in the fourth quarter last year.

“The BSP maintains its cautious approach for now, amid concerns over the global economy. With domestic demand staying robust and continuing to support the overall GDP growth outlook, there is no reason why the BSP should turn dovish,” he said.

The country’s GDP growth accelerated to 6.3 percent in the fourth quarter of  2015 from the revised 6.1 percent in the third quarter on the back of robust domestic demand and improving government spending.

However, weak global demand and lack of government spending pulled down the GDP growth to 5.8 percent for the full year from 6.1 percent in 2014, lower than the seven to eight percent target set  by economic managers.

On the other hand, inflation eased to a 20-year low of 1.4 percent last year from 4.1 percent in 2014 amid stable food prices and cheaper utility rates due to softening oil prices in the world market.

This allowed the Monetary Board to keep interest rates unchanged for 10 straight policy-setting meetings since October 2014. The overnight borrowing rate is currently pegged at four percent while the overnight lending rate is at six percent.

Cahyadi said the policy-setting body of the central bank is likely to jack up rates in the second half of the year.

 “We still expect a tightening to happen sometime this year, with possibly 25 basis points hike in the second half of 2016,” he added.

As a preemptive move, the BSP jacked up interest rates by 50 basis points in 2014.