BSP likely to keep rates unchanged

Bankers and economists expect the Bangko Sentral ng Pilipinas (BSP) to keep interest rates unchanged at a policy meeting later this week. Nine analysts polled by BusinessWorld were unanimous in saying the central bank would keep policy rates steady for the sixth straight month on Thursday. The BSP’s overnight borrowing and lending rates are at 4 percent and 6 percent, respectively. Francisco G. Trinidad Jr., Citigroup economist for the Philippines, said there was no pressure on the central bank to raise rates since inflation had stayed within official targets so far and the peso’s rise had helped temper consumer prices. "The BSP will keep rates unchanged because [the] uptrend in inflation is relatively benign despite core inflation... steadily rising from 3 percent at the start of the year to 4 percent in March," Trinidad said in a telephone interview last Friday. "It is also accommodating [the] strong peso and clearly this is their way of mitigating inflation risks and a way to ward off a surge in capital flows," he added. Inflation stood at 4.3 percent, 4.2 percent and 4.4 percent in the first three months of the year, all within the central bank’s target of 3.5-5.5 percent this year. The peso, meanwhile, closed at P44.355 per dollar on April 15, almost 4 percent higher than its ending price last year. Trinidad said the risk from excess liquidity was also fairly muted despite election spending. "If you look at special deposit accounts (SDA), a lot of money has gone back to [the] BSP. About P250 billion has taken refuge at the BSP’s SDA, so even from a liquidity angle, monetary authorities can afford to wait before making adjustments," he added. Jonathan L. Ravelas, chief market strategist of Banco de Oro Unibank, Inc., also cited stable consumer prices, giving the Monetary Board much leeway to maintain policy rates. "We have to consider that inflation remains stable from where we were at December. Also, liquidity remains adequate for the market and is in fact being diverted to equities," he said in another telephone interview. "These factors are well in line with the BSP’s expectation so there is no need to tweak the present system." Ravelas added that the central bank was also unlikely to touch other liquidity enhancing measures and would prefer to wait after the May 10 elections before making further moves. "We should probably see more signs after the election. If inflationary expectations change by then, the BSP will likely take action, so it will be towards June," he said. Security Bank Corp. economist Patrick M. Ella agreed that the BSP would most likely wait after the elections to tweak interest rates and other liquidity measures. "They could still move the rediscount, but I am still leaning on no change on all fronts since we are entering [the final part of the] election period. They will probably adjust [rates] when elections are over to keep everything stable," he said. For his part, Rizal Commercial Banking Corp. Senior Vice-President Marcelo E. Ayes said monetary authorities could continue withdrawing liquidity boosters to signal the gradual withdrawal of easy monetary policy. "There may be further withdrawal of the rediscount facility. They may reduce it again to P20 billion, so it’s going back to its normal size... to show that the exit strategy is ongoing," he added. Last month, central bank Governor Amando M. Tetangco Jr. said the Monetary Board would likely keep the cost of credit at current levels in the first half given the favorable inflation outlook.