!['We no longer expect any rate hike from the BSP in the next year. Risks are now tilted toward a cut,' DBS Bank of Singapore says. Image from Shutterstock]()
MANILA, Philippines – DBS Bank of Singapore now expects the Bangko Sentral ng Pilipinas (BSP) to cut interest rates next year as inflation continued to ease amid stable food prices and cheaper utility rates.
The investment bank was originally expecting the BSP’s Monetary Board to jack up interest rates by 25 basis points by the third quarter 2016 as inflation is expected to pick up due to the prolonged and severe El Niño weather condition.
“We no longer expect any rate hike from the BSP in the next year. Risks are now tilted toward a cut,” DBS said.
“Statements from BSP have been fairly consistent this year. Despite the softer inflation outlook, a rate cut doesn’t look imminent for now. Not as long as GDP (gross domestic product) growth momentum remains fairly strong, which is currently the case,” it said.
The country’s GDP growth eased to 5.3% in the first half of the year from 6.4% in the same period last year due to weak global demand and lack of government spending.
The BSP has kept interest rates for eighth straight policy-setting meetings since October least year amid the benign inflation environment. The overnight borrowing rate is currently pegged at 4% and the overnight lending rate at 6%. (READ: Philippines' Q2 GDP growth rises to 5.6%)
Inflation eased to a new record low of 0.4% in September from 0.6% in August, bringing the average inflation to 1.6% in the first 9 months of the year, lower than the 2% to 4% target set by BSP.
“The fact that some inflationary risks on food prices persist means that BSP is also likely to keep its tight policy stance,” DBS said.
In 2014, BSP raised interest rates by 50 basis points as well as the reserve requirements for banks to siphon off excess liquidity in the financial system.
DBS also noted that several central banks in Asia raised key interest rates due to uncertainties brought about by the impending interest rate hike by the US Federal Reserve (US Fed) as well as the economic slowdown in China.“With the US Fed also unlikely to be aggressive in tightening its monetary policy, there would be pressure on the BSP to lower its interest rates ahead. This is especially true if the central bank would want to facilitate a softer peso ahead,” it said. –Rappler.com
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