Analysts forecast ‘hawkish’ stance of BSP to continue

Bangko Sentral ng Pilipinas (Central Bank of the Philippines). Wikipedia photo

On the heels of its announcement of its twin monetary tightening moves, the Bangko Sentral ng Pilipinas (BSP) is forecast by many economists to maintain its “hawkish” stance. These analysts likewise foresee that that the central bank may possibly raise key rates in the near term.

Economists from JP Morgan, Barclays, ANZ and Maybank made the predictions after the BSP hiked the overnight policy rates and special deposit account (SDA) rates by 25 basis points just last week.

However, economists from Bank of the Philippine Islands, HSBC and Citigroup have a more tempered forecast and anticipate that the BSP will pause for the remainder of 2014 and resume its hawkish actions next year.

BPI believes that the BSP will be on neutral gear for the rest of the year.

In a research note by economist Emilio Neri Jr., BPI added that: “We, however, see another 50-basis point cumulative increase in the SDA and RRP rates in 2015 as local monetary policy adjusts to US policy normalization. A risk to our base scenario is the possibility that the BSP could become more aggressive, if food supply continues to be unstable in the coming months. This risk has increased as a recent decision of the Philippine government to reject offers from Vietnam and Thailand to sell rice due to disagreement on price.”
For their part, Citigroup said that the shift in rates last week was likely was a “one-time event.”

Citigroup economist for the Philippines Jun Trinidad said that if the country’s second semester gross domestic product were to grow by a pace of 7 percent or more, this would likely trigger another 50-basis point tightening by the first quarter of 2015.
Meanwhile, HSBC economist Trinh Nguyen said that “The September inflation data will be most important for the October meeting and we believe that headline inflation will decelerate sharply.”

JP Morgan economist Sin Beng Ong expects the central to keep on tightening rates in the fourth quarter., given the upward tilt of inflation. Additionally, the group anticipates another 25-basis-point hike in the overnight policy and the SDA rates come the fourth quarter of 2014. Another 50-basis-point rise is expected in 2015.

There are two more monetary setting meetings scheduled by the Monetary Board of the BSP the for this year: Oct. 23 and Dec. 11.