BPI exec eyes up to 75 bps hike in domestic interest rates in next 12 months

By Joann Santiago

MANILA, July 1 (PNA) — An executive of the Bank of the Philippine Islands (BPI) forecasts up to 75 basis points increase in domestic interest rates in the next 12 months.

During the annual stock holders meeting of ALFM Mutual Fund, an investment company managed by a BPI subsidiary, in Makati City Tuesday, BPI senior vice president and asset management and trust group head Maria Theresa Marcial-Javier said the forecast is based on the projection of the central bank about the sustained rise of the domestic inflation rate.

For this year alone, Javier projects a 25 to 50 basis points increase in the interest rate of the BSP’s key rates.

”We forecast a 25 to 50 basis points increase (in the BSP key rates) towards the end of the year. And it will be in combination with the SDA,” she said.

To date, the BSP’s overnight borrowing or reverse repurchase (RRP) rate is at record-low of 3.5 percent and the overnight lending or repurchase (RP) rate is at 5.5 percent.

These were last adjusted in October 2012 when these were slashed off 25 basis points in line with the BSP’s move to support domestic expansion. That year, the key rates were cut off a total of 100 basis points.

Relatively, interest rate of the central bank’s special deposit account (SDA) is currently at 2.25 percent.

This was adjusted upwards by 25 basis points last June 19 in a bid to mop up excess domestic liquidity without using the RRP facility as well as any further increase in bank’s reserve requirements.

Before the adjustment in the SDA rate last month, it was last touched in 2013 to discourage investors from tapping the facility as an investment option for the funds to instead be extended by the banks to productive purposes.

Interest rate of the SDA was previously pegged against the BSP’s overnight borrowing or reverse repurchase (RRP) rate but with the 150 basis point cut in 2013 SDA rate was cut to a unitary two percent.

Javier declined to give forecast on the level of adjustment in the SDA rate but cited it would likely be higher than any changes in the key rates. (PNA)