Standard Chartered expects Bangko Sentral to keep interest rates

The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, may keep the current policy stance steady in its meeting on Thursday as economic growth remains robust and inflation continues to be at a manageable level, British bank Standard Chartered said over the weekend.

“We expect the BSP to keep the reverse repo rate and the special deposit account rate unchanged at 4 percent and 2.5 percent, respectively. GDP growth improved in the second quarter of 2015 after slowing in the first quarter, allaying concerns about a further slowdown,” Jeff Ng, the bank’s regional economist for Asia, said in a report.

“Domestic growth remains robust, which does not support the case for rate cuts, in our view. Inflation is also likely to rebound after slowing to record low levels in recent months,” Ng said.

The gross domestic product growth rebounded in the second quarter, expanding 5.6 percent from the 5 percent in the first quarter. This brought the GDP growth average in the first half to 5.3 percent, way below the government’s target range of 6 percent to 6.5 percent this year.

Ng said as monetary conditions remained tight, the Bangko Sentral could afford to delay rate hikes. He said the bank regulator was likely to gauge the market reaction to the US Federal Reserve’s policy rate decision last week before making any move.

On Thursday, the US Federal Reserve kept interest rates unchanged but hinted there might be a modest policy tightening before the year ends.

Bangko Sentral Governor Amando Tetangco Jr. said countries with good economic fundamentals, like the Philippines, would benefit from the latest action of the US Federal Reserve.

He said the Fed move could result in “some near relief for emerging markets with good fundamentals and yield pick-up.”

He said the Bangko Sentral’s preemptive tightening moves last year remained relevant and domestic demand appeared steady still.

The board in its meeting on Aug. 13 kept the benchmark interest rates steady for the seventh time since October last year on manageable inflation environment.

The board maintained the key policy rates steady at 4 percent for the overnight borrowing and 6 percent for the overnight lending. The interest rates on term RRPs, RPs, special deposit accounts and banks’ reserve requirement ratios were likewise left steady.

The Monetary Board based its decision on its assessment that prevailing price and output conditions support maintaining current monetary policy settings. Latest baseline forecasts showed that inflation could settle slightly below the target range for 2015 but was likely to remain within the target range of 2 percent to 4 percent over the rest of the policy horizon.

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