THE Bangko Sentral ng Pilipinas (BSP) was seen unlikely to follow its peers in Thailand and South Korea, whose monetary policy-makers trimmed interest rates in separate bids to boost their respective economies, a regional banking giant said.
In commentaries released on Friday following the monetary-policy adjustments by the central banks of South Korea and Thai-land, DBS Bank said the BSP was loathe to put additional pressure on loan growth by keeping the overnight borrowing rate steady at 4 percent the rest of the year.
“Following the surprise rate cuts in Thailand and South Korea this week, markets are guessing at who is next to cut in the region. The BSP is one obvious candidate. CPI [consumer price index] inflation has been falling in recent months, and the peso is now the best-performing Asian currency against the dollar in the year-to-date,” analysts at DBS Bank said.
“It is highly unlikely, however, to see the BSP trimming its rates,” the analysts added.
According to DBS, the BSP will likely keep its interest rates on hold, as the country’s main economic indicators are doing well on sustained basis.
“Gross domestic product [GDP] growth is set to remain above 6 percent this year. While CPI inflation has been soft, at an estimated average of 3.2 percent this year, it is still within the official 2-percent to 4-percent target. And on the peso, it is important to note that foreign inflows have been robust,” DBS said, noting record-high inflows in the form of foreign direct investments and remittances in 2014.
Given this backdrop of macroeconomic stability, DBS Bank analysts said the central bank was likely to take keep the rates at which they borrow from or lends to banks where they are and begin the phased adjustments
only in 2016.
“We have previously penciled in a 25-basis-point rate hike in the fourth quarter of 2015. This is likely to be delayed until early-2016. But the BSP is unlikely to make a sharp turn in its policy trajectory. Expect the overnight borrowing rate to remain steady at 4 percent for the rest of the year,” DBS Bank said.
DBS Bank also said the BSP “may even tinker” with its special deposit account interest rates during the year to balance risks stemming from fiscal expansion.
The central bank of Thailand cut its main rate to 1.75 percent to prop up a weaker-than-expected economy, followed by the Bank of Korea’s decision trimming its rate also to 1.75 percent as a preemptive strike against prospectively weaker demand down the line.
The rate cuts were a surprise to financial markets and was not foreseen in polls conducted by private sector economists. The BSP will next deliberate on the direction of domestic interest rates on March 26, when the seven-man Monetary Board meets again.