Policy rate seen steady as peso weakness counterpoint

The Bangko Sentral ng Pilipinas (BSP) is expected to keep a steady hand over the monetary-policy levers when the seven-man policy-making Monetary Board meets anew this Thursday.

Singapore-based DBS Bank economist Gundy Cahyadi said the BSP is forecast to keep the rate at which it borrows from or lends to banks unchanged after the meeting, citing ample cushion from lower-than-projected inflation in recent months.

At the rate-setting meeting in August, the Monetary Board kept the BSP’s overnight reverse repurchase (RRP) rate at 3 percent.

The corresponding rates on the overnight lending and deposit facilities were also kept steady and that of the banks’ reserve requirement ratios, which were widely expected by markets.


“We remain of the view that the Central Bank is slightly behind the curve in policy tightening. While a move is still unlikely next week, we reckon there is a good chance for a 25-basis-point rate hike each in both the final quarter of 2017 and first quarter of 2018,” Cahyadi said.

Cayhadi further said the softer-than-expected inflation in June and July this year provided room for the BSP to keep the rates steady at the September 21 meeting.

Consumer price pressures were a wee bit restrained earlier in the year, averaging only 2.7 percent in June and 2.8 percent in July, for instance. It, however, surged right back to 3.1 percent the following August.

“Inflation is slowly gaining momentum yet again, as seen from the latest August 2017 print, even if it is set to remain within the 2 percent-to-4 percent target for now. Additionally, there is plenty of liquidity in the banking system, evident in the near-20 percent loan growth in the first half of 2017,” the economist said.

“More important, the upward pressure on global rates may also gain dominance going into 2018. This may put pressure on the peso to weaken further. The peso is already the worst-performing currency in Asia this year, having weakened by 2.8 percent against the US dollar [up to August 2017], or 5.4 percent in trade-weighted terms,” Cahyadi added.

“We don’t expect the BSP to stay tolerant of further peso weakness, amid the potential negative impact on investment-related import demand,” he further said.

The rate-setting meeting on Thursday is the sixth such meeting this year. The next one will be on November 9.

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Bianca Cuaresma graduated cum laude from the University of Santo Tomas (UST) with a degree in AB Journalism. She was with the BusinessMirror during her internship in 2012 where she was assigned at the Department of Foreign Affairs (DFA) beat. She continued to be of service to the paper after she graduated in 2013. In 2014, she was awarded as the Reporter of the Year by the paper for her coverage in the Bangko Sentral ng Pilipinas (BSP). She is a BusinessMirror reporter for 3 years now, and has covered general assignments and agencies related to banking and finance in the country.