By Bianca Cuaresma
ECONOMISTS see the Bangko Sentral keeping its current monetary-policy stance in their next monetary-policy meeting, as inflation and growth expectations remain anchored and as developments from external drivers—like the Federal Reserve’s (the Fed) most recent comment on its own monetary policy—warrant such.
In a poll conducted by the BusinessMirror, local and international economists expect another no-change from the seven-man policy-making board of the central bank on Thursday, citing several reasons.
Among the reasons cited by the economists are the low but rising inflation rate; the expectation of a pickup in growth this year; and the latest statement of the Fed that favors a more gradual interest-rate normalization in the US economy.
“We expect the Bangko Sentral to remain watchful of upside risks to inflation and keep the policy rate on hold at the June 25 meeting,” Standard Chartered economist Jeff Ng said.
The onset of the El Niño and its effect on agricultural production have been mostly the largest risks to inflation in the country—coupled with the volatility in oil prices in the international market.
“No change; concerns over risk to inflation that the El Niño may bring and volatility in the financial markets, which may come from normalization of US monetary policy and which may affect the stability of the financial sector,” ING Bank Manila economist Joey Cuyegkeng said.
Also exploring the possibility of rate movements in both the upward and downward bias, the economy has been found to bear the still-appropriate monetary policy—a setting that has been on since September last year.
“Average CPI [consumer price index] inflation for this year is likely to be in the lower half of the central bank’s 2-percent to 4-percent target. Coupled with a moderation in loan growth, the central bank is unlikely to further tighten its policy this year. But, no strong reason for the BSP to loosen its policy in the near term either. The government’s 7-percent GDP [gross domestic product] growth target was always a long stretch to begin with. We reckon that the BSP is fairly comfortable with GDP growth staying circa 6 percent,” Singapore-based DBS Bank economist Gundy Cahyadi said.
Aside from the setting of the local economy, external factors are also telling that the BSP will stand pat on Thursday.
“Latest Fed decision to hold rates and to downgrade growth rate only reinforces a no-action from the BSP on the policy front,” Security Bank economist Patrick Ella said.
Adding to that, economists and market players have read the central bank officials’ forward guidance as unbiased toward hiking or cutting rates this month.
“[The] market flirted with the idea of a rate cut, but Governor Amando M. Tetangco Jr. and Deputy Governor Diwa Guinigundo were quick to nip those rumors in the bud. The governor’s most recent statement on inflation remaining within target for the year despite the El Niño should allay fears of any surprises,” Bank of the Philippine Islands (BPI) research officer Nicholas Antonio Mapa said.
The economists, meanwhile, shared mixed views on what the next move will be from the central bank in the future.
“We’re not looking for any change, but I think there’s a chance the governor could tone down the hawkish rhetoric a bit given the recent fall in inflation,” Barclays economist Bill Diviney said.
This view of the possibility of tightening is also on the cards of BPI’s Mapa, saying that the “BSP can afford to keep rate steady for the meantime and possibly tighten in the medium term, or the financial world post-Fed rate hike.”
For Standard Charter’s Ng, meanwhile, the BSP is seen to be “more open to easing after risks to inflation from El Niño-related food inflation and potential Brent price increases pass.”