BSP’s Monetary Board is likely to put on hold any changes in key policy rates during its meeting on Thursday, September 24, said Jeff Ng who serves as regional economist for Asia of Standard Chartered Bank.
“As monetary conditions remain tight, we think the BSP can afford to delay rate hikes. The BSP is likely to gauge the market reaction to the US Fed’s policy rate decision before making a move,” said Ng said.
The BSP’s Monetary Board raised interest rates by 50 basis points last year setting the overnight borrowing rate at 4 % and the overnight lending rate at 6% as well as and upped the reserve requirements for banks last year.
The move was done, the BSP explained, to siphon off excess liquidity in the financial system.
“We expect the BSP to keep the reverse repo rate and the special deposit account rate unchanged, at 4% and 2.5 %, respectively,” NG said.
BSP to watch the Fed
Earlier, BSP Governor Amando Tetangco Jr. said the central bank would continue to monitor developments after the US Fed kept key policy rates on hold last week.
“We may see some near relief for emerging markets with good fundamentals and yield pick-up. Over the medium term, the markets will have to watch for more definitive action from Chinese authorities,” Tetangco said.
He pointed out the US Fed opted to keep interest rates steady due to uncertainty in global markets that could impact the US economy.
The Fed has kept its benchmark interest rate close to zero since late 2008 right at the onset of the global debt crisis.
With the China slowdown, monetary authorities in the US believe the low global oil prices and US dollar appreciation would continue to dampen domestic US inflation.
“We will watch market price action to see how market is digesting fed move, check for impact of portfolio flows on domestic liquidity, and evaluate new inflation forecasts, to see if there is a need to fine tune policy levers or communication,” Tetangco added.
Robust domestic growth
Ng added that growth in the second quarter of 2015 has addressed concerns of a prolonged slowdown given the lower than expected first quarter results.
“Domestic growth remains robust, which does not support the case for rate cuts, in our view. Inflation is also likely to rebound after slowing to record lows in recent months,” Ng said.
GDP expansion in the second quarter accelerated to 5.6 % from the revised 5 % in the first quarter buoyed by more government spending. (READ: Philippines' GDP growth in Q2 rises to 5.6%)
Inflation also eased to a new record low of 0.6% in August from 0.8% in July amid stable food prices and cheaper power rates.
This brought the average inflation in the first eight months of the year to 1.9 %, below the BSP target range of 2% to 4%. – Rappler.com