By Bianca Cuaresma
After keeping monetary-policy rates unchanged on Thursday, the Bangko Sentral ng Pilipinas’s (BSP) next move will likely be a rate hike in preparation for the new framework the central bank is set to implement in the second quarter, economists said.
In separate research notes, Barclays economist Rahul Bajoria and Bank of the Philippine Islands (BPI) research officer Nicholas Antonio Mapa said the BSP is set to “mildly hike” interest rates.
As to the timing of the hike, however, Mapa sees it happening in 2016, while Barclays sees it in the second quarter of next year.
“Our central scenario remains for a BSP SDA [special deposit account] mild rate hike in 2016 to safeguard the inflation path as the Fed [Federal Reserve] rate hike continues at a gradual pace and the current El Niño could foment domestic inflationary pressures,” Mapa said.
“We continue to expect the next policy move to be a hike, but with growth likely to show a modest slowdown, we see the BSP hiking rates only in the second quarter of 2017,” Bajoria said.
“This expected hike will likely materialize if growth has recovered sufficiently and inflation is high enough to justify an increase in rates,” he added.
In its first meeting for the year, the BSP Monetary Board (MB) decided to maintain all policy rates—a move widely expected by markets—as the central bank opts to “remain vigilant,” amid evolving external conditions and as inflation expectations have shifted “slightly” on the downside.
Central bank Governor Amando M. Tetangco Jr. said the MB decided to maintain the BSP’s key policy rates at 4 percent for overnight borrowing or reverse repurchase (RRP) facility and 6 percent for overnight lending or repurchase (RP) facility.
The interest rates on term RRPs, RPs and SDA were also kept steady. The reserve requirement ratios were, likewise, left unchanged.
The current policy rates have been in place since 2014.
Mapa said they expect the BSP to cut the repurchase rates by 150 basis points, and the reverse repurchase rate by 100 basis points to tighten the IRC and improve efficiency in transmission of monetary policy.
The BSP earlier announced the implementation of the interest rate corridor (IRC), one of the most watched out policy framework by the markets this year. The IRC is targeted to make the framework of monetary operations more effective.
The corridor will be around the BSP’s policy rate and SDA facility rate.
The BSP’s lending or RP rate will be the ceiling of the corridor and the SDA interest rate will be the floor of the corridor.