THE Bangko Sentral ng Pilipinas’s (BSP) Monetary Board (MB) is expected to pause for the second time this year in tightening its monetary policy during an upcoming meeting on the back of tame inflation expectations.
Private economists in the country agree that the central bank will end the year with a status quo on its monetary levers as it has already lowered the path of inflation until the end of the year.
“Pause continues—no change in policy rates…. Softening inflation and inflation expectations allow the BSP room to keep policy steady. Global energy-price weakness and improvements in local supply chain for basic commodities and services would likely exert downward pressure on prices,” ING Bank Manila’s economist Joey Cuyegkeng said.
“It is likely the BSP will keep policy rates unchanged. Reasons are simple. Inflation is clearly normalizing its trend and will likely remain soft. Even if there is a temporary impact of the storm, this will be a passing effect than a longer term one. Also, the surprisingly weak third quarter of 2011 gross domestic product is another compelling reason for the BSP to hold off rates,” Security Bank economist Patrick Ella said.
Bank of the Philippine Islands (BPI) associate economist Nicholas Antonio Mapa and Banco de Oro Unibank Inc. chief market strategist Jonathan Ravelas also see unchanged monetary policy in the BSP’s policy-stance meeting on Thursday.
Pause, not stop
MEANWHILE, economists also agree that the central bank’s unchanged views of policy may not last long as they see another bout of interest-rate tightening into the mid-2015 due to the expectation of a “more normal” policy environment in the US.
“We would likely see the pause to be extended into first-quarter or second-quarter 2015, especially from an inflation policy-related perspective…. The BSP-MB is likely to consider other factors that risk threats to the financial-banking sector, especially when US and global data become more favorable and monetary policy in the US is increasingly expected to start further normalization,” ING’s Cuyegkeng said.
“I do not see him [BSP Governor Amando M. Tetangco Jr.] acting on December 11, but I am very confident that he does act in the second quarter of 2015 to continue to bring monetary policy to a more normal stance, guarding against possible second-round effects and in anticipation of the Fed hikes at the end of the second quarter of 2015,” BPI’s Mapa said.
The central bank has held its horses to decide on unchanged overnight rates and retained reserve requirement ratio and special deposits account interest rate in its October 23 meeting.