MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may extend its pause by keeping key policy rates unchanged on Thursday amid the inflation downtrend as well as the relatively calm economic conditions, according to bank economists.
Aris Dacanay, economist for ASEAN at HSBC, said the BSP is likely to keep its key policy rate steady at 6.25 percent despite the hawkish hiatus by the US Federal Reserve.
Since the Monetary Board meeting last month, Dacanay said things have been calm and steady in the lead-up to the next meeting on June 22, potentially the last to be chaired by BSP Governor Felipe Medalla whose term ends on July 3.
“With economic conditions relatively calm over in the archipelago, we think the BSP remains sanguine and unperturbed. We therefore expect it to hold its policy rate at 6.25 percent in the Monetary Board meeting,” Dacanay said.
Adding confidence to the central bank’s decision, Dacanay said, is the well-timed cut to the reserve requirement ratio (RRR) on June 30, coinciding with the expiry of the pandemic-era relief measure that allows banks to count loans to micro, small and medium enterprises (MSMEs) and large companies as part of reserves.
Like the US Fed, Dacanay said that keeping rates steady should also give the BSP time to assess the effects of its previous rate hikes on the economy.
According to Dacanay, the economy is showing mixed signals, as the gross domestic product (GDP) growth slowed to 6.4 percent in the first quarter from 7.1 percent in the fourth quarter and eight percent in the first quarter of last year.
“On one hand, investment may already be moderating; import demand for capital has slowed while outstanding loans for economic activities have eased year-on-year. On the other hand, import demand for consumption goods and outstanding loans for consumption have been resilient,” Dacanay said.
Nonetheless, the economist said “ uncertainty remains on the horizon and we think risks to the policy outlook remain heavily tilted to the upside as core inflation still needs to come down, while the peso could still be under pressure, with the Fed signaling the possibility of hiking its policy rate to 5.50 to 5.75 percent by yearend.”
Adding to the uncertainty is the appointment of the next BSP governor after Medalla led the central bank in its most aggressive tightening cycle in the new millennium to rein-in inflation and to keep up with the US Fed.
ING Bank senior economist Nicholas Mapa said the BSP may extend its interest rate hike pause by keeping key policy rates on hold for the second straight meeting while assessing the outlook for the Fed.
“Moderating inflation coupled with the Federal Reserve hold at the June meeting means we are expecting the BSP to hold rates steady,” Mapa said.
Security Bank chief economist Robert Dan Roces said the Monetary Board is likely to keep its policy rate steady along with the Fed’s hawkish stance.
Despite the core inflation remaining sticky and above the headline inflation, Roces said the consumer price index (CPI) has been moderating sequentially.
“We estimate inflation to fall within the two to four percent target around September or October of this year, but inflation, peso depreciation, and Fed policy action risks remain tilted to the upside thus the BSP may want to keep interest rates ahead of the curve at some point after this month to keep these risks in check, and continue to signal a hawkish hold itself in the meantime,” Roces said.
In its Asia Macro Weekly, ANZ Research head for Asian Khoon Go and foreign exchange analyst Kausani Basak said the BSP would maintain its benchmark policy rate at 6.25 percent as four consecutive months of easing inflation is comforting.