The Monetary Board of Bangko Sentral ng Pilipinas is expected to maintain the current policy settings steady in its meeting Thursday, given low inflation and robust economic growth, two foreign banks said Wednesday.
ING Bank of the Netherlands and Hongkong and Shanghai Banking Corp. said the Monetary Board would likely maintain the overnight borrowing and lending rates.
“BSP is likely to keep policy settings steady at this week’s policy rate meeting since economic activity remains strong. There is no compelling reason for BSP to alter policy settings now,” ING Bank Manila senior economist Joey Cuyegkeng said in a report.
The last time the Monetary Board tweaked the policy stance was in September 2014, when overnight borrowing rates was increased to 4 percent and overnight lending adjusted to 6 percent.
“Growth indicators show strong economic activity in the first quarter. Manufacturing indicators exhibit buoyant industrial activity while government spending is outstripping spending growth in the first quarter of 2015,” Cuyegkeng said.
HSBC said despite the possibility of keeping the policy rates on hold, Bangko Sentral might announce plans to narrow the policy corridor by cutting the policy and lending rates.
“There are operational changes in anticipation of the introduction of an interest rate corridor on June 3, and are meant to be policy-neutral… After all, current policy is adequate… growth likely accelerated in the first quarter on the back of strong consumption and investment while inflation remained subdued at 1.1 percent year-on-year in April,” HSBC said.
Bangko Sentral earlier said it was planning to start the operations of an interest rate corridor at the end of the first half.
Cuyegkeng said structural inflows together with a weaker peso-dollar average in the first quarter added to spending power. He said private sector investments were expected to remain strong.
“These would more than offset contraction in agriculture production which El Niño has badly affected. The 1Q GDP estimates are expected to be announced next Wednesday. These drivers of growth together with positive base effects could see 1Q GDP growth of around 6.6 percent,” Cuyegkeng said.
Cuyegkeng said the market would now focus on the new government’s economic policies, noting that Davao City mayor Rodrigo Duterte’s economic initiatives “do not deviate much from the mainstream.”
“Recent economic and business related statements of Duterte are encouraging but there are portions that require some vigilance. For now, enjoy the post-election day rally,” Cuyegkeng said.
