THE Bangko Sentral ng Pilipinas (BSP) will likely hold rates until the third quarter of the year to support not only growth but, likewise, the local currency’s value against the US dollar, an economist from an international bank said.
ING Bank Manila senior economist Joey Cuyegkeng noted that the BSP will likely maintain a comfortable interest-rate differential to moderate a possible peso volatility during the year.
Earlier, central bank officials said that, while the country has strong fundamentals to support the local currency, external developments, such as the unexpected, or unorderly, normalization of the US’s monetary policy, may cause investors to flock to safe-haven markets and, in turn, cause the peso to experience some uncertainties.
As such, Cuyegkeng said an initial forecast of 50-basis-point rate hike during the year, starting in late September 2015—or the sixth monetary policy meeting for the year.
The peso has behaved in a relatively tame way in the early weeks of this year amid developments abroad, such as the guidance from the US Federal Reserve (the Fed); the change in monetary-policy directions of neighboring countries; the significant collapse of oil prices; and the divergence of growth rates in advanced economies.
In particular, the local currency has only traded largely within the 44 territory for the whole year. From the start of the year at about 45 to a dollar, the local currency’s value managed to climb back to the lower band of the 44 territory this month.
Latest data from the Philippine Dealing System showed that the peso closed at 44.24 to a dollar at the week’s trading end, with a total traded volume of $571.7 million during the day.
Cuyegkeng also said that market players, based on Fed Fund Futures, already factored in a September or October Fed hike, at which the BSP will likely follow suit.
Central bank officials also earlier admitted that, while they still remain “prepared to move policy levers as necessary,” current monetary settings of a 4-percent reverse repurchase rate and 6-percent repurchase rate are appropriate.
This means that the central bank has had more leeway to hold fire in tightening as inflation rate have gone down in the country and across the world largely due to the strong decline of oil prices in the international market.
Inflation hit 2.4 percent in January, the lowest growth of consumer prices since August 2013 when it hit 2.1 percent.
At this rate, inflation is already nearing the bottom band of the government’s annual target of 2 percent to 4 percent.