Lower-than-projected inflation across the Philippines makes for a more compelling argument that the Bangko Sentral ng Pilipinas will opt for a stay on the rate at which it borrows from or lends to banks when it meets today to decide on the matter.
Singapore-based DBS Bank, for instance, said the rate-setting meeting of the BSP’s Monetary Board (MB) today, Thursday, was not likely to announce any change in the monetary settings.
Its analysts said the MB seem to “not be in a hurry to tighten its own monetary policy”.
According to DBS Bank economist Gundy Cahyadi, the BSP will keep its main policy rate unchanged at the current 3-percent mark and that this should remain frozen till a policy-rate adjustment, likely by as much as 25 basis points, is decided on later in the year.
“The Central Bank is not in a hurry to tighten its monetary policy. This is despite being faced with a gradual policy tightening in the US,” Cahyadi said.
“And the Central Bank also suggested no reason to panic, even as the peso remains weak,” he added.
This has reference to the exchange rate trading weaker by 16 centavos right off the bat on Wednesday to P50.58 per dollar at the local currencies market called the PDS. It would close the day’s transactions also 13 centavos weaker than a day earlier. By the time all transactions ceased, the exchange rate weakened by 23.3 centavos to P50.621
per dollar.
Cahyadi’s views mirrored that of the International Monetary Fund (IMF), which recently said the monetary settings remain appropriate, no matter that the policy rate has to rise at some point.
“We think monetary stance is appropriate today. But when we look at the world, we do see interest rates are going to increase, and this is most likely going to have an impact on the Philippines. We would expect higher interest rates in the Philippines down the road in line with global tightening of financial conditions, but we don’t see the need to tighten monetary policy stance today,” IMF Article IV Mission Head Luis Breuer earlier said.
Stakeholders, essentially banks, trust units and other financial-sector players all agree the BSP has to make that policy adjustment at some point
forward.
“Looking at how market rates have behaved so far this year, however, expectations are still for the BSP to start tightening soon enough. While we are not overly worried at this juncture, there are rising concerns over the widening current account deficit,” Cahyadi said.
“Consumption growth is strong at 6-percent pace, while investment growth is solid in the double digits. Even if the inflation trajectory doesn’t scream for higher policy rates as yet, the BSP can definitely afford to adjust rates higher in the coming months,” he added.